t’s really a question of, are we getting the bang for the buck? And clearly we’re not. The system was sputtering. And I began to feel that at 3.5%. After that, that’s when I dissented. Obviously for this next go-around, I have to watch to see if there is any change in signals. I’m just starting my briefings now for this.

What I’m hearing from CEOs is … the first quarter may have been positive, the second quarter’s probably not. There are real concerns about small businesses. Why? Because they’re not getting access to credit. … The credit system strikes me as being at the heart of the problem. And obviously the Fed has worked very hard on this. I’ve been in favor of every one of these [liquidity] initiatives. To me that’s where the priority is. To get the other to work the way we’re used to it working, it just strikes me that that has to get back to its efficient transmission mechanism.

Will the U.S. slowing down really damp the price of oil, or the price of food, rice, or flour, cornmeal, the price of steel? … It’s not clear to me that a mild slowdown will put a dent in price pressures domestically. Obviously if you have a tail risk of a very severe global slowdown, then yes, I can see that. I don’t see that in the cards at least from my limited perspective. If you think in closed-economy terms, that’s more likely to obtain. If you think in global terms, it is less likely to obtain unless the whole world slows down.

There's been a lot of turbulence and a lot of turmoil. Risk spreads that were unusually small during the last couple of years have now become unusually large. You've got some markets that don't seem to be equilibrating easily. ... Arbitrage opportunities that could bring two prices together are not necessarily occurring.

From Q&A as reported by Market News International

Taking expected inflation into account, the level of the federal funds rate in real terms — what economists call the real rate of interest — is now negative. The last time the level of real interest rates was this low was in 2003-2004. But that was a different time with a different concern — deflation — and monetary policy was intentionally seeking to prevent prices from falling. Recently, we have had reason to be worried about rising inflation, not declining prices. Thus, comparing the nominal funds rate today with the stance of policy in 2003–2004 is like comparing apples and oranges.

The current turmoil in financial markets has led to a tightening of credit that has affected the broader economy and has the potential to continue to restrain economic growth going forward. The risk that the financial turmoil could become more severe and further adversely affect the functioning of financial markets suggests to some that short-term interest rates need to be lower than they would be otherwise in order to provide a form of insurance. However, determining the appropriate extent of such extra accommodation is difficult to quantify.

A slowing economy is no guarantee of slowing inflation pressures.

From audience Q&A as reported by Reuters.

My concerns about inflation really tie in to this notion that, if you look at the broader base from which we see price increases, the more concerns I have that it's not these isolated price shocks, but that it's ... broad based.

From audience Q&A as reported by Reuters

Smaller banks have generally not held these complicated financial instruments, so they have been more insulated from the financial turmoil.7 They also have not been liquidity providers for securities, so they have experienced less unexpected growth in their assets. As a result, there have been far fewer complaints from small and medium sized businesses – generally the clients of smaller banks – about credit availability.

However, it is important to note that the continued health of small and medium sized banks will be impacted should residential and commercial real estate prices decline in a severe manner. While that is not my forecast, it is only fair to note that for the liquidity problems to be confined it is important for collateral values to stabilize. Significant price declines will likely lead to more residential and perhaps commercial mortgage defaults not necessarily limited to the subprime market, and thus more likely linked to mortgages held in portfolio by smaller banks.8

Inflation is a problem now. It is too high and personally I would be uncomfortable in waiting for economic slack to bring it down.

...

I am particularly concerned about movements in measures of expected inflation.

From comments to press, as reported by Reuters

It is important not to get wrapped up in dancing on the head of a semantic pin.

I am expecting a contraction in economic activity in the first half of this year. And whether the NBER (National Bureau of Economic Research) decides it is a recession ... I am willing to wait.

From comments to press, as reported by Reuters

It looks like we're in the midst of a contraction. [He said he is] expecting a contraction in economic activity
in the first half. ...

It's not over yet. I don't think it's going to end all at once.

I think the crucial variable is stability in the residential housing market in a broad number of geographies that we can have some confidence about our sense of where housing prices are going. The other major source of uncertainty that I think is consequential is non-residential construction spending. And we'll just have to see how that plays out.

From comments to press, as reported by Market News International and Reuters

[N]ow we must do what we can to remedy the situation. One thing, however, is clear. The answer, to be curt, is not to compound the bad by repeating the oft-prescribed remedy of inflating our way out of our predicament with a wing-and-a-prayer promise that it can always be reined in later. It is for this reason that I have maintained a strong reluctance to further general monetary accommodation. At the same time, I have been an advocate of using our various discount window facilities, within reason, to bridge the financial system’s structural problems as the credit markets correct themselves and run the long course of contrition.

Globalization, once helpful in tamping down U.S. inflation by creating access to cheap labor, has become a headwind as demand for goods in developing nations rises rapidly, he said.

"Demand is in full force," Fisher said. "I do not see demand pressures being mitigated any time soon."

From Q&A as reported by Reuters

To protect their capital and liquidity, banks and other financial market participants are addressing the weaknesses revealed by market developments by becoming much more careful about the risks they are taking. This is a necessary process, but it has been a difficult one as well; it is reducing the values of some assets and tightening credit cost and availability across a wide range of instruments and counterparties, despite considerable easing in the stance of monetary policy. It is this tightening that is accentuating the downside risks for the economy as a whole. And in some sectors, as lenders seek protection against perceived downside risks, it is probably going further than is necessary to foster financial stability in the long run.

Clearly you can't get interest rates below zero ... but we actually have interest rates now at 2-1/4 percent and clearly there is some room to lower them if it's needed.

... Furthermore, we are continually looking at steps to make the markets function better and I think we've been quite creative in terms of the steps we've taken so far, but in fact we will continue to look at the steps that we can take to in fact make the functioning of the financial markets get back to a more normal situation

From Q&A as reported by Reuters