been reaffirmed each year since ( chart 2 ). in it, the committee indicates that price stability is understood to mean 2 percent inflation in the long run as measured by the annual change in the price index for total personal consumption expenditures ( what we refer to as the pce price index. ) the 1930s ’ deflation and the 1970s ’ double - digit inflation clearly indicate that the nation is well - served by the fed having a long - run inflation objective and making sure it achieves that objective within a reasonable period of time. the employment mandate is more nuanced. because maximum employment is determined by nonmonetary factors that affect the structure of the labor market, we can ’ t have a simple, time - invariant goal. we do, however, project where we think the longer - run normal, or “ natural rate, ” of unemployment is currently. today, our estimates for this rate generally range between 5. 2 percent and 5. 6 percent. such assessments can vary over time. however, the most important determinants of the natural rate change only slowly, so today ’ s assessment is an important input into policy. being explicit about it contributes greatly to our accountability. accountability is key. much as corporations require corporate scorecards and earnings calls to explain quarterly performance, the fed needs to regularly communicate its policy strategy and evaluate how it ’ s doing. and, when we are missing our policy goals, the public needs to know what we are doing about it. we need to decide on the appropriate actions to achieve our objectives and communicate them to the public. to that end, in our longer - run strategy statement we ’ ve said that when the economy deviates from price stability or maximum federal open market committee ( 2014c ). bis central bankers ’ speeches employment, we ’ ll take a balanced policy approach that achieves both goals within a reasonable period of time. a clear articulation of the fomc ’ s goals and an explanation of how it views its policy misses and plans to correct them help the public better anticipate the fed ’ s policy actions. in turn, the public ’ s improved understanding of fomc policy actions increases their efficacy by reducing uncertainty over future financial conditions and how those actions might evolve with changes in the economic environment. so, what we clearly need is a scorecard that communicates our accountability in a straightforward manner. keeping score when there are two goals i like to illustrate our balanced approach to achieving our dual - mandate goals

what economists call a “ liquidity trap. ” let me explain. in normal times, real interest rates – that is, nominal interest rates adjusted for expected inflation – rise and fall to bring desired savings into line with investment and to keep productive resources near full employment. this market dynamic is thwarted in the case of a liquidity trap. that is, when desired savings increase a great deal, nominal interest rates may fall to zero and then can go no lower. real bis central bankers ’ speeches interest rates become “ trapped ” and may not be able to become negative enough to equilibrate savings and investment. that is where we seem to be now – short - term, risk - free nominal interest rates are close to zero and actual real rates are modestly negative, but they are still not low enough to return economic activity to its potential. a liquidity trap presents a clear and present danger of a prolonged period of economic weakness – today that means a risk of repeating the experience of the u. s. in the 1930s or that of japan over the past 20 years. but we need not resign ourselves to such an outcome. because of the dire implications of liquidity traps, economists have studied them over the years in rigorous analytical models. importantly, variants of these models have successfully explained past business cycle developments in the u. s. these studies conclude that economic performance can be vastly improved by employing monetary policies that commit to keeping short - term rates low for a prolonged period. a balanced policy approach as i weigh the evidence, i believe we are in a liquidity trap and favor the prescription of continued accommodation. but i recognize that i could be wrong. central bankers have incomplete information, and sometimes are confronted with very different views of the forces driving the economy. this is especially true in the difficult circumstances we currently face. instead of a liquidity trap, some have posited that we are in an economic malaise that reflects “ structural factors ” ( such as a job skills mismatch ) and that the economy today is actually functioning close to a new, more dismal productive capacity. i have discussed this very pessimistic “ structural impediments scenario ” in other forums. 1 if this scenario is true, then further monetary accommodation will only lead to rising inflation without much improvement in unemployment. those subscribing to this view warn of repeating the mistakes of the 1970s. at that time, the fed did not understand that the changing structure of the economy had caused the