this observation is helpful in understanding some of the differences between an open - ended asset purchase program, such as qe3, and its closed - end predecessors. one advantage of going with an open - ended approach is that when we rolled out qe3 in september 2012, we were able to make a forceful statement that we would continue with asset purchases until we observed, as chairman bernanke put it in his postmeeting press conference, a “ substantial improvement in the outlook for the labor market. ” 7 we were able to do so even though i suspect that, had we tried to put a number to it, there would have been considerable disagreement among committee members as to the exact meaning of “ substantial improvement. ” so in this case, leaving the committee ’ s reaction function incompletely worked out allowed us to move forward with a major policy initiative in a timely manner, which otherwise might have been very difficult. of course, the flip side of this reaction - function incompleteness is that it becomes harder for the committee to precisely communicate its future intentions to the market – in part because these future intentions have not yet been fully fleshed out. rather, it makes more sense in this case to think of the committee ’ s reaction function as being something that is not entirely predetermined and that will naturally tend to evolve over time. the interaction of the committee and the market going further, it is important to note that this evolution of the reaction function does not happen in a vacuum, where the committee deliberates in a cloistered fashion and then simply reports its decisions to the market. all along, the market is making conjectures about how we will behave, and these conjectures in turn can have a powerful influence on the debate itself. this feedback effect has been especially relevant in the case of qe3, because the policy has relied significantly on a signaling channel for some of its effectiveness. that is, qe3 has, in my view, mattered not just because of the direct downward pressure on longerterm interest rates associated with removing a given quantity of duration from the private market, but also because it has buttressed our forward guidance by serving as a credible signal of the committee ’ s intentions with respect to the future path of the federal funds rate. of course, if the committee is using asset purchases to signal its policy intentions, then the information content of purchase decisions depends importantly on what the public expects it to do. for example, if it is early 2013 and

end of 2014 actually increased somewhat. see the responses to question 10 on the april survey and question 8 on the july survey ; the survey results are available on the federal reserve bank of new york ’ s website. see john geanakoplos ( 2009 ), “ the leverage cycle, ” in daron acemoglu, kenneth rogoff, and michael woodford, eds., nber macroeconomics annual 2009 ( chicago : university of chicago press ), pp. 1 – 65. bis central bankers ’ speeches at - risk constraints, low volatility is likely to induce them to take on more leverage. if volatility rises sharply in the wake of an announcement, this increase will tend to exacerbate the unwind effect. to be clear, i am not saying that monetary policy communications should have been different during this period. rather, the point is that in some circumstances there are very real limits to what even the most careful and deliberate communications strategy can do to temper market volatility. this is just the nature of the beast when dealing with speculative markets, and to suggest otherwise – to suggest that, say, “ good communication ” alone can engineer a completely smooth exit from a period of extraordinary policy accommodation – is to create an unrealistic expectation. in this spirit, i think the fomc may face a similar communications challenge as the nature of the forward guidance for the path of short - term interest rates evolves over the next couple of years. the 6. 5 percent unemployment threshold that we had until recently was not only quantitative in nature, but it also represented a relatively firm commitment on the part of the committee. while this kind of commitment was entirely appropriate at the zero lower bound, as policy eventually normalizes, guidance will necessarily take a different form ; it will be both more qualitative as well as less deterministic. so, for example, when i fill in my “ dot ” for 2016 in the survey of economic projections, i think of myself as writing down not a commitment for where the federal funds rate will be at that time, but only my best forecast, and one that is highly uncertain at that. chair yellen made a similar point in her march press conference : more generally, you know, the end of 2016 is a long way out. monetary policy will be geared to evolving conditions in the economy, and the public does need to understand that as those views evolve, the committee ’ s views on policy will