Prior discussion:
speaker: MR. BOEHNE.
text: If I probe that, an answer I frequently get is: "If I thought interest rates were going to stay down, then lower rates would help. But if you lower interest rates now, I know you'll have to raise them a few months or a year down the road. Just knowing that rates are going to be down for a short period doesn't help me because I'm going to have to finance whatever I'm going to buy with this [loan] for 5 or 8 or 10 years." I find increasingly that the view in the business community is at odds with what most of us have accepted as a good [economic] relationship. I wonder if you could help me through some of that. 

MR. PRELL. "A retiree living on the proceeds of short-term deposits would not see an improvement coming from lower short-term rates."

Full utterance: It's a difficult question. I think many people in different positions perceive the effects of changes in short-term rates differently. A retiree living on the proceeds of short-term deposits would not see an improvement coming from lower short-term rates. A business that has a heavy load of short-term floating rate debt or debt that rolls over frequently is going to achieve some significant improvements in the bottom line from the decline in interest costs. I think it is fair to say that some of the channels of positive influence from declining rates have been somewhat diminished in their effectiveness in the past couple of years because such sectors as commercial real estate are just so far out of kilter in terms of the fundamentals of supply and demand that making borrowing cheaper is not going to make new investments particularly profitable. It may enhance property values to some degree and diminish the write-downs that will occur, but we're not going to get quite the stimulus we would have in other circumstances. Similarly, to the extent that credit availability has been the problem for some classes of borrowers, a small reduction in rates probably is not going to make a very great difference. But there are a lot of borrowers for whom lower rates will make a considerable difference. I think we've seen that the decline in rates has significantly abetted the balance sheet restructuring process. I think lower rates have played a role in sustaining relatively high valuations in the stock market and probably have cushioned the falls in a variety of other asset values. We have not argued that modest changes in short-term rates are going to make a night and day difference, but if you feel that there is nothing else here to provide a great deal of push to the economy over the next few quarters, our assumption of a decline in long rates looms rather large as a factor in the projected acceleration. And the question becomes one of whether some easing of short rates is needed to facilitate that process. If people thought that the Fed was overdoing it and that the implication of the easing was that we would have significantly higher inflationary pressures down the road and that we wouldn't reverse course in a timely way, then we might not get the beneficial effects in the bond market. My sense is that unless the Fed went to 1 percent on the funds rate tomorrow--if the movement was gradual--that in the context of weak economic indicators we are more likely to get the "too little too late" complaint than we are the notion that we've overdone it and have shifted to a grossly inflationary posture. So, there are a lot of things to weigh here. But, as we suggested, I don't think we should ignore the fundamental notion that on balance easing probably does give us some stimulative effect. It's a very long answer.

Opinion: yes
About monetary policy: yes