is the federal funds rate, p is the percent change in the headline pce price index from four quarters earlier, and y is the output gap. the output gap in turn is approximated using okun's law ; specifically, yt = 2. 3 ( 5. 6 - ut ), where 2. 3 is the estimated value of the okun's law coefficient and 5. 6 is the assumed value of the non - accelerating inflation rate of unemployment, or nairu. see john b. taylor ( 1999 ), " introduction ", in john b. taylor, ed., monetary policy rules ( chicago : university of chicago press ), pp. 1 – 14. see david reifschneider and john c. willams ( 2000 ), " three lessons for monetary policy in a low - inflation era, " journal of money, credit, and banking, vol. 32 ( november ), pp. 936 – 66. bis central bankers ’ speeches economic recovery were to proceed much faster than expected or if inflation were to come in higher. in contrast, if the recovery faltered or inflation drifted down, the committee could provide additional stimulus using its unconventional tools, but doing so involves costs and risks. given the unprecedented nature of the current economic situation and the limits placed on conventional policy by the zero lower bound on interest rates, these issues of risk management take on special importance. more broadly, these considerations help illustrate why it would be imprudent to adhere mechanistically to the prescriptions of any single policy rule. such rules can serve as useful benchmarks for facilitating monetary policy deliberations and communications, but a dose of good judgment will always be essential as well. uncertainty and policy conditionality the policy prescriptions i ’ ve discussed thus far are conditioned on an illustrative baseline forecast for unemployment and inflation. because any economic forecast is inherently uncertain, the fomc ’ s forward policy guidance states explicitly that the committee “ currently anticipates ” that economic conditions are likely to warrant such a stance of policy. the guidance does not state that the committee will keep the funds rate exceptionally low until at least late 2014. i ’ d consider it completely appropriate to modify the specification of the forward guidance in response to significant changes in the economic outlook. potential modifications of the forward guidance can be illustrated by showing how the taylor ( 1999 ) rule responds to two different shifts in the outlook. figure 9 shows one scenario in which the recovery turns out to be

janet l yellen : the economic outlook and monetary policy speech by ms janet l yellen, member of the board of governors of the federal reserve system, at the money marketeers of new york university, new york, 11 april 2012. * * * i appreciate the opportunity to speak with you this evening. the money marketeers are renowned for their keen interest in the economy and monetary policy. with that in mind, i ’ ll describe how my views concerning the stance of monetary policy relate to my assessment of the economic outlook. as you know, the federal open market committee ( fomc ) issued statements following its january and march meetings indicating that it “ currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. ” i agreed with those judgments and, in my remarks tonight, i ’ ll explain my views and describe some of the analytical tools that i use in making such policy decisions. i will also discuss the conditional nature of the committee ’ s policy stance. let me emphasize at the outset that the remainder of my remarks reflect my own views and not those of others in the federal reserve system. 1 the labor market and the economic outlook i will start by describing current conditions and key features of the economic outlook that influence my views on the appropriate stance of monetary policy. to summarize, the labor market has shown welcome signs of improvement. even so, the economy remains far from full employment. furthermore, the improvement in labor market conditions has outpaced the seemingly moderate growth of output. looking ahead, significant headwinds are likely to continue to restrain aggregate spending, and progress in closing the remaining employment gap is likely to be quite gradual. apart from sizable increases in gasoline prices, inflation has been subdued in recent months. while the jump in energy prices is pushing up inflation temporarily, i anticipate that subsequently inflation will run at or below the committee ’ s 2 percent objective for the foreseeable future. let ’ s examine the economic outlook in greater detail before considering how that outlook shapes my views on appropriate policy. starting with the labor market, as i mentioned, there have been encouraging signs of improvement in recent months. the unemployment rate had hovered around 9 percent for much of last year but moved down in the fall and averaged 8 – 1 / 4 percent in the first three months of this year, about 1 – 3