The risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately in the absence of countervailing monetary policy action to further upward pressure on inflation.

The crisis and recession have led to very low interest rates, it is true, but these events have also destroyed jobs, hamstrung economic growth and led to sharp declines in the values of many homes and businesses.

A collapse in U.S. stock prices certainly would cause a lot of white knuckles on Wall Street. But what effect would it have on the broader U.S. economy? If Wall Street crashes, does Main Street follow? Not necessarily.

In the future, my communications with the public and with the markets will be entirely through regular and formal channels.

The basic prescription for preventing deflation is therefore straightforward, at least in principle: Use monetary and fiscal policy as needed to support aggregate spending, in a manner as nearly consistent as possible with full utilization of economic resources and low and stable inflation. In other words, the best way to get out of trouble is not to get into it in the first place.

We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.

Developments in financial markets can have broad economic effects felt by many outside the markets.