objective clearly and credibly. that communication serves to anchor the public ’ s mediumand long - term inflationary expectations. put another way, without clear communication of bis central bankers ’ speeches objectives, the public can only guess at the intentions of the fomc, and inflationary expectations and inflation itself will inevitably end up fluctuating – and perhaps by a lot. it is possible to undo these shifts in expectations, but doing so entails significant economic cost. the nation saw this all too clearly in the early 1980s, when tighter monetary policy necessary to rein in high inflation resulted in painful employment losses. the federal reserve communicates its objective for inflation in a number of ways. for example, at quarterly intervals, fomc meeting participants publicly reveal their forecasts for inflation in the longer run ( maybe five or six years ), assuming that monetary policy is optimal. those forecasts usually range between 1. 5 percent and 2 percent per year. they are often collectively referred to by saying that the federal reserve views inflation as being “ mandateconsistent ” if it is running at “ 2 percent or a bit under. ” congress has also mandated that the fomc set monetary policy so as to promote maximum employment. some see an intrinsic conflict between the fomc ’ s price stability mandate and maximum employment mandate. but there is actually a deep sense in which the price stability and maximum employment mandates are intertwined. imagine that inflation runs at 3 or 4 percent per year for three or four years. the public will then start to doubt the credibility of the fed ’ s stated commitment to a 2 - percent - or - a - bit - under objective. the public ’ s medium - term inflationary expectations will consequently begin to rise. as we saw in the latter part of the 1970s, these changes in expectations can serve to reinforce and augment the upward drift in inflation. at that point, the federal reserve will have to tighten policy considerably if it wishes to regain control of inflation. but we learned in the early 1980s that the resultant tightening – while necessary – generates large losses in employment. in other words, failing to meet its price stability mandate can also lead the fomc, over the medium and long term, to substantial failure on its employment mandate. 1 an important and ongoing communications challenge for the fomc is that it is much harder to quantify the maximum employment mandate than the price stability mandate. changes in minimum wage policy, demography, taxes and regulations,

december, the federal reserve announced the creation of a temporary term auction facility ( taf ) to provide secured term funding to eligible depository institutions through an auction mechanism. the federal reserve also established swap lines with the european central bank and the swiss national bank, which provided dollar funds that those central banks could lend in their jurisdictions. at the same time, the bank of england and the bank of canada announced plans to conduct similar term - funding operations in their own currencies. the taf function, which i believe has had beneficial effects on financial markets to date, is expected to continue as long as necessary to address elevated pressures in short - term funding markets, and the federal reserve will continue to work closely and cooperatively with other central banks to address market strains that could hamper the achievement of our broader economic objectives. conclusion if recent events have taught us anything, it is that, during times of market turbulence, banks are essential providers of liquidity to others. to ensure that banks are well positioned to play this critical role, banks need to carefully manage their own exposure to liquidity risks. because liquidity problems can have significant effects on both sides of bank balance sheets, liquidity risks should be evaluated and addressed on an enterprise - wide basis, and should be tightly integrated with capital planning.