BERNANKE: Well, first, I think that many of the monetary or nominal indicators that somebody like Milton Friedman would look at did suggest the need for more monetary stimulus. For example, nominal GDP has grown very slowly. Growth in the money supply is a fact -- not talking about the reserves held by banks, which are basically idle, but if you look at M1 and M2, those have grown pretty slowly.
The Taylor rule suggests that we should be in some sense way below zero in our interest rate and therefore we need some method other than just normal interest rate changes to -- to...
TOOMEY: Do you know if Mr. Taylor believes that?
BERNANKE: Well, there are different versions of the Taylor rule. And there's no particular reason to pick the one he picked in 1993. In fact, he preferred a different one in 1999, which if you use that one gives you a much different answer.
TOOMEY: My understanding is that his view of his own rule is that it would call for a higher fed funds rate than what we have now.
BERNANKE: There are, again, many ways of looking at that rule, and I think that ones that look at history, ones that are justified by modeling analysis, many of them suggest that we are -- we should be well below zero, and I just would disagree that that's the only way to look at it. But, anyway, so I think there are some -- there is some basis for -- for -- for doing that.
I'm sorry, the last part of your question was?
TOOMEY: In the context of even, unfortunately, slow economic growth, should that persist, what kind of inflation indications would cause you...
BERNANKE: ... we are very -- we are -- we are committed -- you know, some -- some economists have -- a few economists have suggested temporarily raising inflation above normal levels in order to -- as a way of trying to stimulate the economy. We have rejected that approach, and we are committed to not letting inflation go above sort of the normal level of around 2 percent in the medium term.
So we are looking very carefully at indicators of inflation, including actual inflation, including commodity prices, including the spreads between nominal and index bonds, which is a measure of inflation compensation, looking at surveys, business pricing plans, household inflation expectations. We look at a whole variety of things. And we -- I just want to assure you, we take the inflation issue very, very seriously, and we do not have the illusion that allowing inflation to get high is in any way a constructive thing to do. And we are not going to do that.