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

reap the most synergies between national and european efforts. ensuring that individual member states are converging towards best practices is of common concern. a new convergence process would allow more european citizens to benefit from highly efficient economies and could provide the basis for a sustainable catching - up of both employment levels and, over the medium term, income levels in countries which are currently lagging behind. once sufficient convergence has been achieved, the conditions would be met for further risk - sharing at the euro area level, for instance by building a common fiscal capacity with appropriate democratic accountability. as we pursue the objective of stronger economies in a stronger union, there is no such thing as a steady state, but a need for continuous improvement towards our common goal : the stability and cohesion of our continent. to this end, the rights and obligations among the member states which share a single currency have to progress to reflect our increased interdependence, face new challenges and conquer new frontiers. in the words of heraclitus, “ change is the only constant ”. bis central bankers ’ speeches