are intended to replace shortfalls in aggregate demand. and recent extraordinary monetary policy actions are intended to lower risk - free rates and grow balance sheet capacity to help offset the pullback by private financial intermediaries. but financial markets may extract penalty pricing if fiscal authorities are unable to demonstrate a credible return to sustainable budgets. and they are unlikely to look kindly on monetary authorities unless they decidedly and unambiguously chart their own independent paths. the federal reserve should not – and will not – compromise another kind of stability – price stability – to help achieve other government policy objectives. on balance, i would not be surprised if these countervailing forces – unprecedented public support and underwhelming private demand – fight to a draw by the fourth quarter. but the scale of stimulus and the recent blow to the real economy are both lacking precedent, so predicting the victor is tough business. of course, the extraordinary monetary and fiscal support may prove more efficacious in the near term than i expect, leading to a continued easing in credit conditions, a slowdown in the rate of deleveraging, improved inventory levels, and better quarterly economic statistics. even so, the benefits of stimulus are likely to wane. more important, unemployment rates, in my judgment, are likely to remain higher and linger longer than in recent recessions. the " jobless recovery " may prove to be a familiar and vexing refrain. as a wise stanford mentor of mine coined many years ago, " the economist's lag is a politician's nightmare. " 10 medium - term prospects the rebalancing of u. s. gdp and global demand is likely to require some patience. during the transition, there may well be political impetus for still more - aggressive macroeconomic policies. in evaluating new measures, however, policymakers'predominant interest should be ensuring the credibility of their fiscal and monetary frameworks. for, if macroeconomic policies were to become unanchored, or misunderstood by markets, continued government aggressiveness could prove counterproductive. the global economy runs the risk of being mired in a period of slower growth for several years to come. some portion of the subpar economic performance may be owed to the normal capital and labor reallocations that take place during recoveries. and given the serious misallocations that marked the onset of this recession, there is good reason to believe that the period of reallocation will be deeper and last longer. a reduction in the size of

as an experiment for good reason. it might deliver on its promise of lower volatility, lower unemployment, and higher growth over the course of a generation. but, it might not. the costs of the stability experiment might turn out to be large. necessarily and hastily crafted when the financial crisis began, the stability experiment is likely to survive far longer than the panic that preceded it. it is surging in popularity and is likely to grow in application, particularly if, as i suspect, the economic picture disappoints. incipient recovery since mid - march of this year, financial conditions have continued to improve. panic conditions are showing signs of retreat. asset prices are rebounding, searching for a new equilibrium from their panic - induced depths – both in the united states and across the vast majority of our trading partners. and this improvement in markets coincided with the arrival of the proverbial green shoots of spring. this gloss of recovery is appealing, of course, and not only to central bankers. i, like you, am rooting for the positive trend to continue. but, in my estimation, the rather indiscriminate bounce off the bottom – across virtually all assets and geographies – may be more indicative of a one - time reset, which may or may not be complete. i would be more comfortable going forward if we observe more dispersion in the valuations of particular assets and greater differentiation across asset classes and geographies. the panic's hasty retreat should not be confused with robust recovery. for economic performance will turn ultimately on the force of private final demand ; and for now, it remains weak. real consumer spending rose only modestly in the first quarter of this year, after dropping sharply in the second half of last year. businesses reduced real spending at an annual rate of more than 35 percent and continued to cut their workforces. real exports fell at an annual rate of close to 30 percent. the trauma experienced by businesses and consumers coming out of the panic should not be underestimated. notwithstanding recent encouraging signs that the contraction is abating, i would expect business capital expenditures and consumer spending to continue to disappoint for the next several quarters. even if, as i expect, the united states emerges from this recession sooner than our advanced foreign trading partners, i am still very cautious about predicting a sustained run - up in net exports so soon after the virtual collapse of global trade. exceptional fiscal expenditures, by their own terms,