policy. there are three key takeaways worth highlighting : first and foremost is the secular decline in the neutral rate of interest, or r - star, which has brought neutral real interest rates to near zero in the united states. this decline in r - star in turn implies that the constraint on monetary policy from the lower bound on nominal interest rates has become a central aspect of the landscape with which policymakers must contend. second, over the past decade, inflation in the united states has been below our 2 percent longerrun target most of the time, and a number of measures of inflation expectations have drifted down in recent years. 3 it is important to note that these first two observations are closely connected, as emphasized in the paper with thomas mertens that i presented at last year ’ s hoover conference. in a world of 1 / 3 bis central bankers'speeches low r - star and a lower bound on nominal interest rates, a standard inflation targeting approach can lead to inflation and inflation expectations that are anchored below the targeted level. 4 third, during the long economic recovery following the 2007 – 09 recession, we saw the unemployment rate reach 50 - year lows without causing an undesired rise in inflation. structural changes in the economy — and in particular the labor market — have greatly expanded the level of employment that can be maintained without creating inflationary pressures. but, changes like those are hard to see in real time, making estimates of the natural rate of unemployment or other barometers of the economy ’ s potential inherently uncertain and subject to change. 5 evolution in our thinking one clear lesson is the critical importance of formulating a policy approach that effectively and consistently keeps longer - run inflation expectations anchored at 2 percent. perhaps the most notable change we announced to our framework was explicitly describing success in terms of achieving inflation that averages 2 percent over time. in particular, “ following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time. " 6 a second tangible evolution in our approach is that we made explicit that in seeking maximum employment, we are focused on eliminating shortfalls from that goal. we also emphasized the inclusive nature of our maximum employment goal. this means thinking more broadly than the aggregate rate of unemployment and examining the full range of indicators when it comes to assessing shortfalls from maximum employment. together, these changes position us to deliver on our dual mandate goals in a world of very low r - star and persistently

william c dudley : job creation in the region remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the quarterly regional economic press briefing, new york, 12 august 2011. * * * good morning and welcome once again to the new york fed ’ s quarterly regional economic press briefing. i am pleased to have this opportunity to talk with the journalists covering our region – and through you, to the people in our district. this morning i will focus on regional economic conditions, with particular attention to job creation trends in the second federal reserve district, which covers new york state ; northern new jersey ; fairfield county, connecticut ; puerto rico ; and the u. s. virgin islands. following my remarks, my colleagues will provide more details. as always, what i have to say reflects my own views and not necessarily those of the federal open market committee ( fomc ) or the federal reserve system. national economic conditions the statement issued by the fomc earlier this week presents a sober assessment of the state of the u. s. economy. economic growth so far in 2011 has been quite a bit slower than we expected earlier in the year. while jobs growth picked up early in the year, in the last few months conditions in the labor market have deteriorated again and the unemployment rate edged up. household spending has flattened out, and the housing sector is depressed. business investment in equipment and software is expanding, but investment in corporate office and other commercial buildings is weak. some of the weakness in economic activity in the first half of the year was due to temporary factors such as the hit to household income from higher food and energy prices, and supply chain disruptions following the tragic earthquake in japan. these restraining forces have abated and thus, we should see stronger growth in the second half. but it is clear that not all of the weakness was due to these one - time factors – and in light of this, i have revised down my expectations for the pace of recovery going forward. on the inflation front, the committee noted that inflation has moderated recently as energy and commodity prices have declined from their peaks – having picked up earlier in the year, mainly reflecting higher prices for commodities and imported goods, as well as the supply disruptions from japan. longer - term inflation expectations remain stable, and the committee now expects inflation to settle over the coming quarters at levels at or below those consistent with our mandate to promote full employment and price stability. in light of the