. federalreserve. gov / monetarypolicy / fomcminutes20130918ep. htm on the board ’ s website. bis central bankers ’ speeches committee ’ s two objectives of maximum employment and price stability are complementary. when they are not, the fomc has stated that it will pursue a balanced approach in the pursuit of its dual mandate, working to ensure that both inflation and employment are close to their desired values in the longer term. in short, the federal reserve, like many central banks around the world, has made significant progress in recent years in clarifying its goals and policy approach, and in providing regular information about the future path of policy that it views as most likely to attain its objectives. this increased transparency about the framework of policy has aided the public in forming policy expectations, reduced uncertainty, and made policy more effective. the financial crisis and its aftermath, however, have raised even greater challenges for, and demands on, the federal reserve ’ s communication. we have had to contend with the persistent effects of the seizing - up of the financial system, the collapse of housing prices and construction, new financial shocks in europe and elsewhere, restrictive fiscal policies at all levels of government, and, of course, the enormous blows to output and employment associated with the worst u. s. recession since the great depression. moreover, for the first time since the fomc began using the federal funds rate as its policy interest rate, that rate is effectively at zero and thus cannot be lowered meaningfully further. consequently, to provide needed support to the economic recovery and minimize the risk of deflation, the federal reserve has had to adopt new policy tools, which bring their own communication challenges. in the remainder of my talk, i will discuss how the federal reserve has used communication to try to further inform the public ’ s expectations about how the fomc will employ what are currently its two principal policy tools : its plans regarding its short - term policy interest rate and its large - scale purchases of securities. forward guidance about policy interest rates as the economy weakened over 2008, the fomc repeatedly cut its target for the federal funds rate, its short - term policy rate. in december of that year, the target for the funds rate was reduced to a range of zero to 1 / 4 percent, and money market rates declined nearly to zero. thus, using the standard means of further easing monetary policy – cutting the target interest rate – was no

in announcing its fixed - size programs, the fomc did state a general willingness to do more if needed – and, indeed, it has followed through on that promise – but such statements left considerable uncertainty regarding the conditions that might warrant changes in an existing program or the introduction of a new one. i discussed this effect more fully in bernanke ( 2012 ). as i noted then, both milton friedman ( 2000 ) and james tobin ( 1965, 1969 ) made this argument. lsaps may affect financial conditions through other channels as well ; see bernanke ( 2012 ) for a more complete discussion. one such channel is a “ signaling channel, ” which works to the extent that the direct action of buying securities increases the credibility of communication tools like forward rate guidance ( posen, 2012 ). an additional concern that some have raised about the federal reserve ’ s expanded balance sheet is the possibility that financial conditions could evolve in a way that significantly reduces the fed ’ s net interest income on its portfolio for a time, which in turn could lead to a period during which the fed is not remitting income to the treasury ; see carpenter and others ( 2013 ) for an analysis. such a situation, though unlikely, could have reputational costs and possibly increase risks to the federal reserve ’ s independence. although these costs must be taken into account, careful analysis suggests that, in fact, lsaps almost certainly will result in improved government finances : first, even if a period of no payments to the treasury occurs, it is highly likely that the payments over the period of unconventional monetary policy will be significantly higher than they would have been without lsaps ; indeed, since 2009, the fed has remitted more than $ 350 billion to the treasury, about the same total as it remitted during the 18 years prior to the crisis ( 1990 – 2007 inclusive ). second, a complete accounting of the fiscal effects of lsaps should take into account the beneficial effects of a stronger economy on tax receipts, interest payments, and government spending ; the reduction in the budget deficit from these sources will certainly outweigh the effects on the deficit of any changes in the pace of fed payments. finally, while fiscal effects are important, the full effect of the fomc ’ s policies also includes important additional benefits of increased economic growth and employment and of greater price stability. bis central bankers ’ speeches in a step roughly analogous to the shift from date - based guidance to the contingent,