were they to raise prices to boost profits further, competitors with already ample profit margins would not follow suit ; instead, they would use the occasion to capture a greater market share. this interplay is doubtless a significant factor in the evident loss of pricing power in american business. intensifying global competition also may be further restraining domestic firms ’ ability to hike prices as well as wages. clearly, the appreciation of the dollar on balance over the past eighteen months or so, together with low inflation in many of our trading partners, has resulted in a marked decline in non - oil import prices that has helped to damp domestic inflation pressures. yet it is important to emphasize that these influences, too, would be holding down inflation only temporarily ; they represent a transition to a lower price level than would otherwise prevail, not to a permanently lower rate of inflation. against the background of all these considerations, the fomc has recognized the need to remain vigilant for signs of potentially inflationary imbalances that might, if not corrected promptly, undermine our economic expansion. the fomc in fact has signaled a state of heightened alert for possible policy tightening since last july in its policy directives. but, we have also taken care not to act prematurely. the fomc refrained from changing policy last summer, despite expectations of a near - term policy firming by many financial market participants. in light of the developments i ’ ve just discussed affecting wages and prices, we thought inflation might well remain damped, and in any case was unlikely to pick up very rapidly, in part because the economic expansion appeared likely to slow to a more sustainable pace. in the event, inflation has remained quiescent since then. given the lags with which monetary policy affects the economy, however, we cannot rule out a situation in which a preemptive policy tightening may become appropriate before any sign of actual higher inflation becomes evident. if the fomc were to implement such an action, it would be judging that the risks to the economic expansion of waiting longer had increased unduly and had begun to outweigh the advantages of waiting for uncertainties to be reduced by the accumulation of more information about economic trends. indeed, the hallmark of a successful policy to foster sustainable economic growth is that inflation does not rise. i find it ironic that our actions in 1994 - 95 were criticized by some because inflation did not turn upward. that outcome, of course, was the intent of the tightening, and

mark w olson : the federal open market committee and the formation of monetary policy remarks by mr mark w olson, member of the board of governors of the us federal reserve system, at the 26th conference of the american council on gift annuities, orlando, florida, 5 may 2004. * * * thank you very much for inviting me here this evening. when my longtime friend lance jacobson extended this invitation more than a year ago, i readily accepted. several months later, the 2004 calendar of federal open market committee ( fomc ) meetings was released, and i discovered that this meeting would occur on the day following the committee's may meeting. because fomc members observe a blackout on discussions of the economy for the week before and the week of the fomc meetings, i prefer not to talk about current economic conditions. however, i can provide you with some insight into the way the fomc functions and the impact of monetary policy on the u. s. and global economies. my former federal reserve colleague laurence meyer provided the blueprint for this presentation in a 1998 speech entitled “ come with me to the fomc. ” 1 that title, in turn, was borrowed from remarks given back in 1951. while my remarks are not identical in either style or substance, i have borrowed heavily from larry's presentation, and you have the assurance that they have a long history. first, a comment or two on who we are. nineteen policymakers participate in fomc meetings, although at most only twelve vote at any one time. at times vacancies on the board mean that the fomc has fewer than twelve voting members. the board has now operated at full strength for almost two years, after several years with two vacancies. each of the board members is appointed by the president of the united states and confirmed by the senate. our chairman, alan greenspan, has two designations : the president has appointed him both as a board member and as chairman. a board member's term is fourteen years, and the chairman has a term of four years. though alan greenspan's chairmanship expires this june, his term as a board member extends through january 2006. as you may know, president bush announced last year that he intended to reappoint mr. greenspan as chairman. the board vice chairman is also appointed by the president for a fouryear term. the current vice chairman, roger ferguson, was reappointed last