the decade. indeed, it has only been over the past year – following nearly 20 years of stagnation – that we see the recent goal - oriented see, for example, kocherlakota ( 2013 ). bis central bankers ’ speeches monetary expansion making significant headway in extracting japan from below - target inflation. recent european experience the recent european experience in 2011 is yet another example of premature tightening. despite the headwinds from continuing debt - overhang and recent financial distress, european authorities in 2011 judged that the eurozone economy was emerging from recession and headline inflation was at risk to rise persistently above target. the european central bank ( ecb ) responded by raising policy rates in 2011. they soon had to backtrack as output in the eurozone fell again and inflation began to march down below target. today, the eurozone faces continued economic weakness and an inflation rate that is just about 1 / 2 percent. as a result, the ecb recently lowered policy rates to the zlb, has started undertaking additional unconventional monetary policies, and is now encouraging fiscal expansion among eurozone countries that are able to do so. these lessons from monetary history strongly suggest that there are great risks to premature liftoff from the zero lower bound or near - zlb conditions. unless economic conditions are fundamentally strong and the previous impediments to growth have receded sufficiently, the odds remain high that monetary authorities will need to retreat right back into the zlb. and the costs of being mired in the zero lower bound are simply very large. i have already talked about how the zlb prevents using our very best policy tools to address negative shocks. the constraint also means that interest rates cannot fall low enough to equate the supply of saving with the demand for investment. this, of course, significantly impedes capital formation, future economic growth, and further employment expansion. furthermore, the zlb often comes hand in hand with undesirably low inflation or even a falling price level, carrying with it the associated costs of debt deflation on the real economy. the risk of too - high inflation what about the other risk to our policy goals that i mentioned – the risk that the u. s. economy could face pricing pressures that accelerate rapidly and ultimately leave inflation far above our 2 percent target for an unacceptably long period? at some point when the economy has clearly overcome the remaining impediments from the largest economic and financial downturn since the great depression, the

two waves of large - scale asset purchases ( march 2009 and november 2010 ), and, more recently, extended the maturity of the assets on our books ( september 2011 ). in august 2011, we added a particular type of forward guidance to our policy, first saying we would likely keep rates low until mid - 2013 and then, in january, indicating that sub - par economic performance would likely warrant exceptionally low rates until at least late 2014. working to complement these efforts and to improve fomc communications more generally, we also added two major communications initiatives : a statement of our monetary goals and long - run strategies, and publication of fomc participants ’ projections for the federal funds rate. krugman ( 1998 ). see, for example, bernanke, reinhart and sack ( 2004 ) and eggertsson and woodford ( 2003 ). bis central bankers ’ speeches i have strongly supported each of these developments, believing that they improved transparency and also provided welcome further monetary accommodation for the u. s. economy. however, as i have been talking about in public for some time, i think there are additional tools we could use to deliver more effective policy accommodation. in particular, i would like to see our forward guidance take a different form – one that explicitly ties liftoff in the funds rate to observable economic outcomes ( you can think of this as a ulysses - type forward guidance : we tie ourselves to the mast to avoid the siren calls of premature tightening. ) as i will talk about shortly, i believe such policy could provide more clarity about our attitudes toward providing monetary accommodation – and would be more in line with a structure i would have preferred to have seen in our august 2011 and january 2012 actions. this policy also can be structured in a way that would represent a balanced risk - management approach to achieving the dual goals of maximum employment and stable prices that the united states congress has mandated to the federal reserve. communications enhancements first, though, i ’ d like to discuss the fed ’ s latest initiatives to enhance communications. as an accountable central bank in a democratic society, the federal reserve has an obligation to clearly articulate what it is trying to achieve with monetary policy. i believe that our latest communications efforts are an important step in further increasing such accountability to the public, as they reaffirm our commitment to both legs of the dual mandate and describe the ways in which we will seek to achieve those objectives. the framework statement let ’ s start with the framework statement of