to the economy because it will make it much harder for the fed to implement effective monetary policy in the future. credibility was also at the center of my opposition to changing the forward policy guidance in august. i was concerned that tying monetary policy to the calendar could be misinterpreted by the public ; it could suggest that monetary policy is no longer contingent on how the economic outlook evolves. this could lead to a loss of credibility should economic conditions develop in a way that requires the federal funds rate to be adjusted prior to mid - 2013. and in my view, given the outlook, economic conditions will likely warrant that the fed begin to raise rates before then. if such a move is required and we don ’ t act, our credibility to control inflation would be severely damaged. yet, if we do act, our credibility will also be damaged because we encouraged the public to believe we would not act before mid - 2013. bis central bankers ’ speeches finally, the actions taken at our last meeting will make our exit from this period of extraordinary accommodation more complicated. since we will have more long - term treasury securities and mortgage - backed securities in our portfolio, the time it will take to unwind and get back to our stated goal of returning to an all - treasuries portfolio and shrinking our balance sheet may need to be extended and may put at risk our ability to control inflation over the medium term. this does not mean that i see no circumstances in which further monetary policy action should be taken. should the developments in the euro area lead to significant financial market disruptions, the fed would need to respond in its role of lender of last resort to support financial stability and the payments system. or if deflationary fears were to become a real threat again and we saw signs that the economy was moving to a sustained disinflation with declining inflation rates and inflation expectations, then we would need to consider further action to stabilize inflation expectations. the past three years have proven to be challenging times for monetary policymakers both here and abroad. we are in unprecedented territory in terms of policy tools and actions employed. this creates difficulties not only for policymaking but also for the fed ’ s communications. in my view, a high priority for the fed must be to strengthen our monetary policy framework and articulate that framework to the public so that they will better understand the basis for our decisions and be better able to formulate expectations of future policy actions. i believe that this communication, and our accountability to

not sufficient to prevent high rates of inflation. the current environment in the united kingdom should also be a warning. the unemployment rate in britain is near 8 percent, having risen sharply during its recession, yet inflation is now approaching 5 percent and has been steadily rising for nearly two years. monetary policy this brings me to a discussion of the recent policy actions the fed has taken, why i dissented from these actions in august and september, and what i believe should be the long - term framework of monetary policy. as i noted at the beginning of my remarks, the economic conditions of the past few years have led to extraordinary monetary policy accommodation. to date, our actions have kept the federal funds rate – the traditional instrument of monetary policy – near zero for almost three years. the fed ’ s balance sheet has grown more than threefold, from nearly $ 900 billion before the crisis to about $ 2. 9 trillion today. moreover, the asset composition has shifted significantly from mostly short - term treasuries to longer - term treasuries, mortgagebacked securities, and agency debt. this extraordinary degree of monetary accommodation has played a role in supporting the recovery thus far, and it continues to do so. in august, the fomc changed its guidance about its expectations for the future path of the federal funds rate. in particular, it stated that economic conditions were “ likely to warrant bis central bankers ’ speeches exceptionally low levels for the federal funds rate at least through mid - 2013. ” at its late september meeting, the fomc announced additional accommodative action. in an effort to reduce long - term treasury yields from already historically low levels, the fomc intends to purchase $ 400 billion of longer - term treasury securities and to sell an equal amount of shorter - term treasuries by the end of june 2012. this action will not increase the size of the fed ’ s balance sheet, but it will lengthen the maturity of the fed ’ s holdings. in addition, the fomc will be reinvesting principal payments from its holdings of agency debt and agency mortgage - backed securities in mortgage - backed securities rather than treasuries. this action was intended to help support mortgage markets. i dissented from both of these decisions. as i noted earlier, given that inflation was notably higher and unemployment lower than it was last fall when we embarked on our second round of asset purchases, it wasn ’ t clear that further accommodation was called for. in