[applause] it turns out -- yes. it turns out we both had speech therapy for accents. [laughter] it turns out these therapists are 0-2. nce she and i are here it is brooklyn's revenge on the world. i'm hoping you will be nice to her because when she gets up here, she's our guest. quayry e yells or carries on, i will cut you off at the knees. i will not be polite. this is proof that you can take the woman out of brooklyn but -- brooklynn out of out of the woman. >> thank you. i lived in california and it has not made a difference. thank you for inviting me here and i think it is a perfect opportunity to speak on to topic to promote a stronger economy. the vital rule in growing use of communication in monetary policy. some of you covered the federal reserve and are familiar with how it sits monetary policy to the federal open market committee. you know that the influence c.p. pays close attention in what it says in the statements it issues after each meeting. this is supplemented by chairman bernanke's press conferences and providing detailed minutes of the meetings. getting this message out to the public depends on the work that you do in reporting and analyzing the statements and actions and explaining its roles and objectives. want to thank you for those contributions. let me also say while i'm particularly pleased to speak to you fape all of you are consumers and producers of communication. at first glance, the o.f.m.'s communication may not seem different from what you've heard other government agencies about what they say about their policies or what businesses say about their products. i hope to show how communication plays a distinct and special role in monetary policy. i would like to offer a comparison that may highlight that difference. suppose instead of monetary policy we were talking about an example of transportation policy. widening roads to ease traffic congestion. whether this road project is announced to the televiced press conference or in a low-key press release, or if there is no announcement. the project is more or less the same. the benefit to drivers will come after the road is widened and it won't be affected whether drivers knew about the project years in advance. at the heart of everything, i will be explaining today that the fact that mon tear policy is different. -- monetary policy is different. it depends on the critically on the public getting the message about what policy will do months or years in the future. to develop this idea, i will take you on a tour of past o.f.m.c. communication, the present, and what i perceive to the future. until recently, most banks avoid communicating about monetary policy. the governor of the bank in england in the early 20th century repeatedly lived by the motto never explain, never excuse. that approach was still firmly in place at the federal reserve when i went to work there as a teffle economists in 1977. i will explain how the importance of transparency shaped communication in the years before the financial crisis. next i will relate how the financial crisis brought unprecedented challenges for monetary policy that required the use holve unconventional policy tools, including the ones that were barely contemplated before the crisis. communication was the center piece of these efforts. finally, i will look ahead. i'm encouraged by signs that the economy is improving and healing from the trauma of the crisis. expected at some point the ofmc will return to a normal approach to monetary policy. i will discuss the communications challenges that the -- they will face when it comes time to make the transition. fomc has long been a topic of great interest to me. it is one that i've worked on more directly since 2010 when chairman bernanke asked me to lead a sub committee on communications. repeatly, i used the word revolution to describe the change from never explain to the current embrace of transparency in the fomc's communication. that may sound surprising to an audience what it feels like to be in the middle of a communication revolution. the speed and frequency of most communication, it seems never stops growing. i will admit, the fomc's changes to the pace and form of communication seem pretty modest in comparison. i mentioned the quarterly press conferences, which were initiated two years ago. these events are televised and streamed live, the mode for most of the fomc's communication is decidely old school. it is the printed word. the committee's most watched piece of communication is the written statement issued after each of its meetings, which are held roughly every six weeks. it may seem quaint that my colleagues and i continue to spend many hours laboring over the few hundred words in the statement, which are then analyzed minutes after the release. the revolution in the fomc's communication though isn't about technology or speed. it is a revolution in our understanding on how communication can influence the effectiveness of policy. think it will help if i start with basics. the fomc consists of the seven members of the federal reserve bored in washington and five of the 12 presidents of the federal reserve banks. all 12 presidents participate in the fomc but only five get a vote. the fomc's job, which is assigned by congress, is to use monetary policy to promote maximum employment and stable prices. these objectives together are known as the federal reserve's dual mandate. in normal times the committee pursues the goal business influencing the level of a short-term interest rate. that's what banks charge each other for overnight loans. when the fomc pushing the funds rate up or down other short-term interest rates move in tandem. medium and longer term interest rates, including auto loan rates and mortgage ratings adjust also to a mechanism i will return to in a minute. by pushing the federal fundings rate up or down, the fomc seeks to influence a wide range of interest rates that matter to households and businesses. typically, the fomc works to lower the federal funds rate with the intention of reducing the rates when the economy is weakening. the fom exrrvings raises the rate when inflation threatens to rise above its objective or when economic activity is likely to rise above sustainable levels. raising and lowering that federal funds rate was long the primary means that the fomc pursued its economic objectives. but hard to imagine now the federal reserve and other banks provided the public will w little information about so much monetary policy moves. the spirit of never explain was very much alive. there were different justification of that approach. one view was less disclosure ould reduce the risk and lower suspiciouses -- suspicions. some believe that markets would overreact to details about monetary policy decisions. there was a widespread belief that communicating about how the fomc might act in the future could limit the committee's iscresh to change policy in -- discretionary to change the policy. the transparency was limited benefit for monetary policy. in some cases it could cause problems and make the policy legislation effective. while the communication increased elsewhere in society, change came slosely to the fomc. 1994, t until february that the committee issued a statement that there was a change in monetary policy. even then it only alerted that the public that the committee changed its policy even it offered an explanation. something big was changing though. it would soon be the force driving major enhancements in the fomc's communication. by the early 1990's, a growing body of research challenged widespread assumptions about how central banks, such as the federal reserve affected the economy. that reevaluation starts with a question that puzzled many of my students when i was a professor. how is it that the federal reserve manages to move a vast economy just by raising or lowering the interest rate on .25%.ght loans by the question arises because significant spending decembers. the exexpanding of business, deciding on , or how much to spend on consumer goods over a year. those depend on employment and other conditions over a longer term as well as longer term interest rates. the crucial insight of that research was that what happens to the federal funds rate today or over the six weeks until the ext fomc meeting is relatively unimportant. what is important is the public's expectations of how the fomc will use the funds rate to influence economic conditions over the next few years. for this reason, the federal reserve's ability to influence economic conditions today depends on its ability to shape expectations of the future. specifically, by helping the public understand how it intended to conduct policy overtime and what the likely implications of those actions will be for economic conditions. to return to the example i used earlier, contrast this effect on expectations with that of a road project. today's commute will not be improved or changed at all by the news that a road will be widened one day. but the effects of today's monetary policy actions are largely due to the effects it has on expectations about how policy will be set over the medium term. let me further illustrate with this with some history. starting in the mid-1960's the federal reserve didn't act forcefully in the face of rigse inflation. the public grew less certain of the federal reserve's ability to fight inflation. this uncertainty led futures of inflation to become unanchored and more likely to react to economic developments. n 1973, an oil price shock led to a large increase in overall inflation. expectations of high erin flation in the future -- higher inflation affected areas. businesses acted in anticipation of higher costs. all that fueled actual inflation. the fomc's efforts to reduce were on in the 1970's ineffective partly due to expectations that it would not do enough. by contrast, you probably know about the federal reserve's successful inflation fighting in the early 1980's. the fomc raised the federal funds rate very high, causing a deep recession. but also convincing the public that it was committed to low and stable inflation. anchoring inflation expectations at low levels helped to ensure that the jumps in commodity prices or other supply shocks would not generate persistent inflation problems. this was illustrated by the effect of another acceleration of oil prices that started in 2005. unlike the 1970's, these price shocks did not result in an increase in overall inflation. that is because the public believed that the federal reserve would keep inflation in check. the fomc wasn't forced to raise interest rates. that softened the blow on huer households and -- householders and businesses. it wasn't necessary because of the credibility that the federal reserve built in the 1980's. you might wonder how monetary policy had any effect prior to the revolution. as it turns out, with a notable exception of the late 1960's and 1970's, the fomc usually responded in a systemic way to economy conditions. in 1993, the economist, john taylor, documented that the fomc licy changes since the mid 1980's reliably followed based on inflation and output. changes in the federal funds rate was usually made in small steps over a number of months. in practice, the federal reserve's approach was never explained but behaved predictably. a close analysis of the fomc's past behavior was a good guide to future policy. it had two shortcomings as a substitute for transparent. it gave an advantage to sophisticated players who fomc's behavior, which is inappropriate for a government institution. cond, as the policy rule explained the federal funds rate much of the time, there were cases when it didn't. even when the experts failed to correctly anticipate the fomc's actions. the trend toward greater tans early y accelerated in 2000's. they issued statements after every meeting about the economic outlook and it provide an assessment to the balance and risks to the economy and whether it was leaning to increasing or decreasing the federal fund's rate in the future. such information about intentions and expectations of the future, which is known as forward guidance became crucial in 2003 when the committee was faced with a weak recovery from the 2001 recession. it cut the federal funds to the very low level of 1% but unemployment remained elevated. the fomc sought some further way to stimulate the economy. in this situation, it told the public that it intended to keep the federal funds rate low for longer than might have been expected. by adding to its statement the words "in these circumstances the committee believes that policy accommodation can many b aintained for aable period." let's pause and note what this moment represented. for the first time the committee as using communication, mere words as its primary monetary policy tool. until then it was probably common to think of communication about future policy as something that supplemented the federal funds rate. but in this case, communication was an independent and i believe effective tool for influencing the economy. he fomc had journeyed from never explain to a point where sometimes the explanation is the policy. by the eve of the recent financial crisis, it was established that the fomc could not rely on its record of systemic behavior as a substitute for communication. special under unusual circumstances for which history had little to teach. i think we're all fortunate that policymakers learned this lesson because the fomc was about to encounter unprecedented economic conditions and policy challenges. the financial crisis and its aftermath demands advances in fomc's communication as great as what had come before. the situation in 2008 and 2009 was like nothing the federal reserve had faced since the 1930's. in late 2008, the fomc cut the federal funds rate nearly to zero. ascertainly as low as it could go and where it has remained. with its traditional tool of luringry monetary policy the funds rate off the table, e fomc turned to newly invented policy options to try both to help stabilize the inancial system and to lower the risk in economic activity. the public grew accustomed to the federal funds rate. with occasional, at this point limited guidance to a particular policy stance would probably last for a while. beyond the task of describing the new policies, extensive new communication was needed to justify these unconventional policy actions. and to connect them to the federal reserve inflation objectives. the best known of these unconventional policies is large-scale asset purchases, which is commonly known as quantitative easing. in late 2008 and continuing through today, the federal reserve has purchased longer term government debt securities, agency guarantee mortgage backed security and longer term treasury securities that totaled o $2.5 trillion to our assets. these purchases were intended o, i believe have succeeded in lowering interest rates and raising asset prices to help further the federal reserve's economic objectives. this is an easing of monetary policy also known as accommodation beyond what ask provided by maintaining the federal funds rate close to zero. but it is important to emphasize that the effects of asset purchases also depend on expectations. if the fomc bought $10 billion in longer terms security today but is expected to sell them tomorrow or very shortly, there will be little effect on the economy. current research suggests that the effects of the asset purchases depend on expectations of total value of securities that the fomc intends to buy and the expectations that the fomc intends to hold those securities. to make these asset purchases effective as possible and adding accommodation, the fomc therefore needs to communicate the intended path of the federal reserve security holdings years into the future. i'm going return in a moment to current and possible future ways in which the fomc does and might communicate such information. the other unconventional policy designed to contribute monetary easing was almost purely communication. it is enhanced forward guidance about how long the committee expects to maintain the federal funds rate near zero. the situation in early 2009 was similar to 2003 but, yet, more challenging. in that earlier episode the fomc at least retained some option of a further reduction in the federal funds rate target. in 2009, communication about the future path of the federal funds rate was the only option. well, initially the forward guidance was simple and familiar. the fomc's statement noted that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period." the committee then enhanced its forward guidance in august of 2011 when it substituted at least through mid-2013 for the words "extended period." this date was moved into the future several times, most reerntly last september when it mid-2015.d to this calendar guidance was an advance over the indefinite extended period but it suffered from an important limitation. the date failed to provide the public with a clear understanding of what conditions he fomc was trying to achieve. what are the economic conditions that would warrant the policy? the consequences was hard for the public to tell whether a change in the calendar date reflected a shift in policy or just a change in the committee's economic forecast. to help provide greater clarity about the committee's objectives, in january 2012, the fomc adopted and released a statement of its longer run goals and monetary policy strategy. the statement laid out for the first time the rates of inflation of unfloiment that the fomc considers -- unemployment hat the fomc considers mandated. the goal most consistent with the mandate is 2%. the central tendency of fomc's participants estimates of the longer run of unemployment ranges from 5.2%-6%. this statement also made clear economic developments may cause inflation in unemployment to temporarily move away from those objectives and the committee will use a balanced approach to return both of them over time to the longer run goals. on the one hand, for example, the current rate of unemployment 5.2%-6%is far above the range in the statement. it is expected to decline gradually. inflation, on the other hand, has been running at or below 2% and is expected to remain at similar levels for several years. in this circumstance, both legs of the dual mandate call for a highly accommodative monetary policy. with unemployment so far from with unemployment so far from its normal level, i believe progress for reducing unemployment should take precedence, even if reducing unemployment might result in inflation slightly temporarily exceeding 2%. the committee reaffirmed this statement in january 2013, and i expect it to remain a valuable road map for many years to come, indicating how monetary policy will respond to changes in economic conditions. meanwhile, the fomc has continued to enhance its communication about how it would use the federal funds rate to return to inflation and unemployment to its longer run objectives. last december, the committee replaced its calendar guidance for the federal funds rate with quantitative measures of economic conditions that would warrant continuing that rate at its current very low level. specifically, the committee said that it anticipates that exceptionally low levels to the federal funds rate will be appropriate at least as long as the unemployment rate remains 6.5%, inflation between one and two years ahead is projected to be no more than committee's 2% longer-term goal and longer-term inflation expectations continue to be well-anchored. i considered these thresholds for possible action a major improvement in forward guidance. they provide much more information than before about the conditions that are