I think it's worthwhile to see exactly how well the packages that have been passed work.

The stimulus package is not going to kick in for a couple of months. We're hopeful that in fact it will help the economy get through this period of slow growth.

When we see what happens there, then we'll have a little bit better idea of what we might need to do in the future.

From Q&A as reported by Reuters

I don't know whether we're going into a recession or not. ... It's clear that the U.S. economy has slowed dramatically. Whether we're in a recession technically or not -- it's like a definition. It's not very meaningful in a substantive sense.

From Q&A as reported by Market News International

If you have monetary policy that's too accommodative for too long, you generate inflationary pressures. Now what does too accommodative for too long mean in terms of actually time dimensions? It's a tougher question, people have different judgments. Monetary policy is currently accommodative. It's below the inflation rate

From press q&a, as reported by Market News International

 Indeed, even as house prices were rising, economists in the Fed and elsewhere were analyzing how a downturn in the housing sector might affect the economy and evaluating potential policy responses. At the time, however, it was simply not anticipated that house price declines would contribute to such burgeoning delinquencies and defaults among subprime borrowers, and that those problems would set off a chain of events that would rattle the financial system, resulting in the credit crunch that is now severely restraining economic activity and employment.

 In fact, the contraction in spending on housing construction subtracted a full percentage point from U.S. real GDP growth last year, and nearly as much the year before. It seems likely that this sector will be a major drag on the overall economy through the end of this year and into 2009.

Until recently, the deflating housing bubble had not spilled over to the rest of the economy. But now it has. It appears that growth in consumption and business investment spending has slowed markedly after years of robust performance, and, as a result, the economy has all but stalled and could even contract over the first half of the year.

The factors weighing down consumer spending go beyond the effects of the credit crunch and the falling house prices. Consumers also face constraints due to the declines in the stock market, which have diminished their wealth. Furthermore, energy, food, and other commodity prices have risen sharply in recent years, essentially “taxing” their incomes. Finally, and very importantly, labor markets have weakened.

Although business capital investment remained robust through the end of last year, it would not be surprising to see firms slow and perhaps even cut into this spending this year in response to overall economic softening and tighter credit conditions. This is especially true for nonresidential construction, which grew by over 15 percent in real terms last year, but now faces serious financing constraints from the credit crunch.

Investment in high-tech equipment and software was strong through the fourth quarter and this sector looks set for growth in the months ahead. But there are some signs of slowing, as orders have fallen off, and there are indications that the demand for computers is softening.

 Current indicators suggest that, starting in the fourth quarter, the national economy, at best, slowed to a crawl. I anticipate little or no growth in the first half of this year. With stimulus from monetary and fiscal policy, economic performance should improve in the second half of this year. Nonetheless, these are particularly uncertain times. I see the risks to this outcome as skewed to the downside given the ongoing turmoil in financial markets, the continued contraction in housing, and the growing caution of households and businesses.

Over the past year, inflation has been elevated by rising food, energy and other commodity prices and declines in the value of the dollar that have boosted import prices. However, several developments suggest that inflation is likely to moderate over the next couple of years. For example, broad measures of compensation have expanded quite modestly over the past year, and productivity growth has been fairly robust. In addition, futures markets point to a leveling out of energy and other commodity prices. Furthermore, the weakening in economic activity should put somewhat greater downward pressure on inflation going forward.

The Federal Reserve cannot, however, be complacent about inflation. Most survey measures of longer-run inflation expectations have remained reasonably well behaved. But measures of inflation compensation derived from the differential between nominal and real Treasury yields have moved up for the period of five-to-ten years ahead. Such measures are an imperfect indicator of inflation expectations, because they are affected by inflation risk and illiquidity. Nevertheless, these movements highlight the risk that our attempts to deal with problems in the real economy could lead to higher inflation expectations and an erosion of our credibility.

Perhaps the decline in the probability that the markets have put on the larger move reflects some sense at this point that maybe financial conditions are a little bit more stable than they were at the time of our last meeting. 

I don't regard financial markets as operating in a normal way at all, but it's nevertheless helpful to see some signs that some of the
liquidity measures we put into the marketplace are working. For whatever reason, we've got a somewhat better sense of financial stability.

From Q&A as reported by Market News International

There's no textbook answer to what monetary policy should be doing at this time.

From Q&A as reported by Market News International and Bloomberg News

With regard to monetary policy, the FOMC has taken significant steps since September, cutting the federal funds rate by 3 full percentage points to an accommodative level of 2¼ percent. I consider such accommodation an appropriate response to the contractionary effects of the ongoing financial shock and the housing downturn, and I anticipate that the resulting stimulus, combined with that of the fiscal package, will foster a moderate pickup in growth later this year. At the same time, consumer inflation seems likely to decline gradually to somewhat below 2 percent over the next couple of years, a level that is consistent with price stability.

However, economic prospects remain unusually uncertain, and the downside risks to growth are significant. Going forward, the Committee must carefully monitor and assess the effects of ongoing financial and economic developments on the outlook for output and inflation, and be prepared to act in a timely manner to promote the economy’s return to sustainable paths for output and employment.

Credit is threatening to displace liquidity as the primary antagonist. A credit crunch, particularly for small businesses and consumers, poses meaningful downside risks to the real economy. And market participants are struggling to assess the possibility that the narrative turns into a multi-act, macroeconomic drama.

Market participants now seem to be questioning the financial architecture itself. The fragility of short-term credit markets is a powerful manifestation of that loss of confidence. There are some encouraging, early signs of repair, but regaining the confidence that markets require will take time, and perhaps uncomfortably to some, patience. It may also require new forms of credit intermediation.

The case for opportunistic capital is improving. Some curative steps by incumbent financial institutions are in the offing. Financial institutions should continue to reassess their sources and uses of funding, their risk-management systems, risk tolerance, and human capital. Generally, they should not hesitate to pare their dividend and share repurchase programs. And, they should raise new capital to strengthen their balance sheets. These actions, in my view, are important signs of strength, and will ensure that financial institutions thrive in the emerging financial architecture replete with new opportunities. These actions will have concomitant benefits on real economic activity.

Consistent with our dual mandate of promoting maximum employment and stable prices, we also need to be alert to risks to price stability. Increases in food and energy prices have pushed up overall consumer prices and are putting upward pressure on core inflation and inflation expectations. We will continue to monitor the inflation situation closely. And, more broadly, in my view, as financial intermediation channels reset, monetary policy will become still more efficacious.

Fed policy--both with respect to liquidity tools and monetary policy--is partially offsetting the consequences of the liquidity and credit pullback on real activity. But we must be careful to not ask policy to do more than it is rightly capable of accomplishing. The problems afflicting our financial markets are indeed long-in-the-making. Correspondingly, the curative process is unlikely to be swift or smooth. Time is an oft-forgotten, yet equally essential, tool of our policy response.