lower growth in productivity and output. this problem is not just in the future. bond markets have become very aggressive in building in expectations of rising short - term rates over time into today's long - term interest rates. higher long - term rates today in response to the long - term effects of permanent fiscal policy changes would offset part of the intended stimulus. the second principle for a temporary demand - side fiscal program is to implement policies that have a large " bang for the buck. " even with agreement on these two principles, designing a temporary demand - stimulus package is a challenge. in general, temporary policies have effects that are more difficult to predict than those from permanent changes. and temporary policy changes typically leave a hole on the other side and therefore create other problems down the road. still, on balance, a package of well - crafted, temporary, quick - acting demand - side fiscal measures would, in my view, make a constructive contribution to supporting and strengthening the rebound expected next year. the current debate in the congress about fiscal stimulus creates a challenge for forecasters and monetary policymakers alike. monetary policymakers condition their policy on a forecast, and the forecast must include some assumption about fiscal policy. in most cases, and especially when fiscal policy was not a player in stabilization policy, this dependence of monetary policy on fiscal policy was not a serious issue. but today, the forecast for 2002 is quite sensitive to whether or not a stimulus package is implemented and to the specifics of the package. i, for one, have assumed that the congress would reach a timely agreement and implement a package with temporary measures characterized by relatively high bangs for the buck. while i have some doubt that this will be the outcome, i have not changed my forecast yet. conclusion the economy contracted in the third quarter and appears to be contracting again in the current quarter. fortunately, a considerable amount of stimulus is already in train because of the combination of monetary policy easing and fiscal policy measures already enacted. the congress may still pass additional fiscal stimulus before year - end. in addition, the internal dynamics that support recovery may soon come into play. in this case, the economy should gradually strengthen over next year. for the moment, the risks continue to be to the down side, but the front - loaded response of monetary policy has already made an important contribution to countering the further adverse shock and, in addition, has provided some insurance against downside risks. once the economy shows signs of moving to a rate of growth above trend

such a plan understandable to the public? i ’ ll next illustrate a method i use to help me judge the best plan of action at a particular time. i will then describe the communications tools the committee is now using to explain its strategy and discuss others it is considering to better explain its policy decisions to the public. in addition to clearly specified goals, concrete recommendations about appropriate monetary policy require the specification of a baseline outlook for the economy and also a realistic, quantitative model of the economy to assess how monetary policy choices affect the likely paths of the fomc ’ s goal variables – namely, inflation and the unemployment rate. figure 1 presents such an outlook, one based on a survey of the federal reserve ’ s primary dealers conducted during the week prior to the september fomc meeting. the baseline paths through 2015 of the unemployment rate and inflation shown by the solid black lines in the upper two panels track the median of the dealers ’ forecasts of these variables. beyond 2015, the path assumes that the unemployment rate converges over time to 6 percent – the median forecast of the long - run unemployment rate, which is the upper end of the range of estimates of the longer - run normal unemployment rate cited in the fomc consensus statement – while the inflation rate settles down at 2 percent, the fomc ’ s inflation objective and the median long - run forecast in the dealer survey. bis central bankers ’ speeches the solid black line in the bottom panel of the figure shows the median of dealers ’ expectations for the path of the federal funds rate through the end of 2015. the dealers assumed it would remain near zero through the first half of 2015, consistent with the guidance the committee subsequently provided. beyond 2015, the federal funds rate is assumed to gradually rise to 4 percent, the long - run value expected by most dealers as well as most fomc participants. i have assumed in the baseline that this process is largely completed within four years. 16 the question i now want to address is whether this illustrative baseline path for the federal funds rate is one that reflects a balanced approach to attaining our longer - run objectives, consistent with our consensus statement. as i noted, this balanced approach means inflation and unemployment will sometimes temporarily deviate from longer - run objectives, but that these deviations would be minimized. to answer this question i need to rely, as i noted, on a specific macroeconomic model, and, for this purpose, i will employ the frb / us model,