return the price level to what was expected by people who signed long - term contracts, such as debt contracts, before the deflation began. however, such a strategy is inappropriate for the united states in current circumstances. inflation expectations appear reasonably well - anchored, and both inflation expectations and actual inflation remain within a range consistent with price stability. in this context, raising the inflation objective would likely entail much greater costs than benefits. inflation would be higher and probably more volatile under such a policy, undermining confidence and the ability of firms and households to make longer - term plans, while squandering the fed ’ s hardwon inflation credibility. inflation expectations would also likely become significantly less stable, and risk premiums in asset markets – including inflation risk premiums – would rise. the combination of increased uncertainty for households and businesses, higher risk premiums in financial markets, and the potential for destabilizing movements in commodity and currency markets would likely overwhelm any benefits arising from this strategy. each of the tools that the fomc has available to provide further policy accommodation – including longer - term securities asset purchases, changes in communication, and reducing the ioer rate – has benefits and drawbacks, which must be appropriately balanced. under what conditions would the fomc make further use of these or related policy tools? at this juncture, the committee has not agreed on specific criteria or triggers for further action, but i can make two general observations. first, the fomc will strongly resist deviations from price stability in the downward direction. falling into deflation is not a significant risk for the united states at this time, but that is true in part because the public understands that the federal reserve will be vigilant and proactive in addressing significant further disinflation. it is worthwhile to note that, if deflation risks were to increase, the benefit - cost tradeoffs of some of our policy tools could become significantly more favorable. second, regardless of the risks of deflation, the fomc will do all that it can to ensure continuation of the economic recovery. consistent with our mandate, the federal reserve is committed to promoting growth in employment and reducing resource slack more generally. because a further significant weakening in the economic outlook would likely be associated with further disinflation, in the current environment there is little or no potential conflict between the goals of supporting growth and employment and of maintaining price stability. conclusion this morning i have reviewed the outlook, the

federal reserve ’ s response, and its policy options for the future should the recovery falter or inflation decline further. in sum, the pace of recovery in output and employment has slowed somewhat in recent months, in part because of slower - than - expected growth in consumer spending, as well as continued weakness in residential and non - residential construction. despite this recent slowing, however, it is reasonable to expect some pickup in growth in 2011 and in subsequent years. broad financial conditions, including monetary policy, are supportive of growth, and banks appear to have become somewhat more willing to lend. importantly, households may have made more progress than we had earlier thought in repairing their balance sheets, allowing them more flexibility to increase their spending as conditions improve. and as the expansion strengthens, firms should become more willing to hire. inflation should remain subdued for some time, with low risks of either a significant increase or decrease from current levels. although what i have just described is, i believe, the most plausible outcome, macroeconomic projections are inherently uncertain, and the economy remains vulnerable to unexpected developments. the federal reserve is already supporting the economic recovery by maintaining an extraordinarily accommodative monetary policy, using multiple tools. should further action prove necessary, policy options are available to provide additional stimulus. any deployment of these options requires a careful comparison of benefit and cost. however, the committee will certainly use its tools as needed to maintain price stability – avoiding excessive inflation or further disinflation – and to promote the continuation of the economic recovery. as i said at the beginning, we have come a long way, but there is still some way to travel. together with other economic policymakers and the private sector, the federal reserve remains committed to playing its part to help the u. s. economy return to sustained, noninflationary growth.