in the u. s. economy. the voting members of the committee are the members of the board of governors and five reserve bank presidents. the president of the federal reserve bank of new york serves on a continuous basis ; the presidents of the other reserve banks serve one - year terms on a rotating basis, beginning on january 1 of each year. all the reserve bank presidents participate fully in the various discussions, regardless of whether they currently have a vote in the policy decision. by law, the fomc must meet at least four times each year in washington, dc. since 1980, eight regularly scheduled meetings have been held each year. if circumstances require consultation or consideration of an action between regularly scheduled meetings, members may be called upon to participate in a special meeting or a telephone conference. – 2 – so what happens at these meetings? the order and structure of these meetings may change over time, but has been pretty much fixed during my term on the board. before each regularly scheduled meeting of the fomc, system staff members prepare written reports on past and prospective economic and financial developments, which are sent to committee participants. at the meeting itself, staff members present oral reports on the current and prospective business situation, conditions in financial markets and international economic and financial developments. after these reports, each committee participant, voting and nonvoting, expresses his or her views on the current state of the economy and prospects for the future. after a short coffee break, we have a staff presentation on the alternatives we face in setting monetary policy. at that point, the chairman gives his view of the economy and makes a suggestion for the appropriate direction of policy. each committee member then responds to the chairman ’ s suggestion, in the process setting out a preferred choice for policy. after this second “ go - around, ” we take a formal vote on the target federal funds rate for the period until the next meeting. at this point, the focus is on the voting members, who, as i noted, include all of the governors and five of the 12 presidents. generally, an announcement of a change in interest rates, if any, is made at about 2 : 15 in the afternoon. a full set of meeting minutes is made available after the subsequent meeting. let me turn now to a discussion of monetary policy and the outlook for the u. s. economy. of course, the views i shall be expressing are my own and are not necessarily shared by the fomc or the board of governors. the

being from the “ real ” side of the economy. another set of variables to be considered in making monetary policy are financial variables, such as money supply, interest rates, exchange rates, credit flows and conditions in bank lending or in the debt and equity markets. the last two years, 1997 and 1998, gave an interesting case study of the interplay between these different variables and the degree of forward - looking behavior in the making of monetary policy. from march of 1997 through much of 1998, pleasant surprises in the performance of inflation and the general absence of early signs of inflation, and uncertainty about the relationship of inflation to changes in the level of production, kept the fomc from tightening. we did not tighten despite the economy being beyond most estimates of its potential and despite many forecasts of rising inflation. put another way, the fomc could have “ preemptively ” tightened monetary policy, based on forecasts, but, recognizing the uncertainties about empirical relationships, chose not to do so. but in the fall of 1998, you may recall, there was concern regarding the performance of the debt markets, especially the bond market and market for commercial paper. these concerns were centered around the fact that corporate borrowers could no longer raise funds in the bond or – 4 – commercial paper markets at reasonable prices or, at some times and for some borrowers, at all. in this case, we were reasonably confident that constraints on the ability of corporations to borrow would eventually have a negative effect on their willingness to invest in productive capacity and therefore on their ability to provide goods and services and to create jobs. a related concern was that weakened foreign economies might have adverse consequences for future domestic activity. under those circumstances, the fomc thought it appropriate to ease to offset a likely significant impact on future domestic spending and growth. finally, no discussion of monetary policy and financial markets would be complete without reference to the equity markets. i believe that the fed cannot target specific levels in equity markets. however, equity markets have spillover effects into the real economy and hence send important signals to policy - makers. as you know, economists often speak of the “ wealth effect, ” and econometric modeling indicates that consumers tend to raise the level of their spending about 2 – to 4 percent of incremental wealth, after two or three years. through the so - called wealth effect, equity valuations can and do have an effect on consumption and on macroeconomic performance. additionally, equity markets are a