2 percent by 2013. the corresponding projections from the survey of professional forecasters for consumer price index ( cpi ) inflation are about 1 - 3 / 4 percent this year and about 2 percent next year and in 2013. blue chip forecasts for cpi inflation stand at about 2 percent for both 2011 and 2012. bis central bankers ’ speeches in commodity prices will lead to, at most, a temporary and relatively modest increase in u. s. consumer price inflation – an outlook consistent with the projections of both fomc participants and most private forecasters. that said, sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored. we will continue to monitor these developments closely and are prepared to respond as necessary to best support the ongoing recovery in a context of price stability. monetary policy as i noted earlier, the pace of recovery slowed last spring – to a rate that, if sustained, would have been insufficient to make meaningful progress against unemployment. with job creation stalling, concerns about the sustainability of the recovery increased. at the same time, inflation – already at very low levels – continued to drift downward, and market - based measures of inflation compensation moved lower as investors appeared to become more concerned about the possibility of deflation, or falling prices. 4 under such conditions, the federal reserve would normally ease monetary policy by reducing the target for its short - term policy interest rate, the federal funds rate. however, the target range for the federal funds rate has been near zero since december 2008, and the federal reserve has indicated that economic conditions are likely to warrant an exceptionally low target rate for an extended period. consequently, another means of providing monetary accommodation has been necessary since that time. in particular, over the past two years the federal reserve has eased monetary conditions by purchasing longer - term treasury securities, agency debt, and agency mortgage - backed securities ( mbs ) on the open market. the largest program of purchases, which lasted from december 2008 through march 2010, appears to have contributed to an improvement in financial conditions and a strengthening of the recovery. notably, the substantial expansion of the program announced in march 2009 was followed by financial and economic stabilization and a significant pickup in the growth of economic activity in the second half of that year. in august 2010, in response to the already - mentioned concerns about the sustainability of the recovery and the continuing declines in inflation to very low levels, the

fomc authorized a policy of reinvesting principal payments on our holdings of agency debt and agency mbs into longer - term treasury securities. by reinvesting agency securities, rather than allowing them to continue to run off as our previous policy had dictated, the fomc ensured that a high level of monetary accommodation would be maintained. over subsequent weeks, federal reserve officials noted in public remarks that we were considering providing additional monetary accommodation through further asset purchases. in november, the committee announced that it intended to purchase an additional $ 600 billion in longer - term treasury securities by the middle of this year. large - scale purchases of longer - term securities are a less familiar means of providing monetary policy stimulus than reducing the federal funds rate, but the two approaches affect the economy in similar ways. conventional monetary policy easing works by lowering market expectations for the future path of short - term interest rates, which, in turn, reduces the current level of longer - term interest rates and contributes to both lower borrowing costs and higher asset prices. this easing in financial conditions bolsters household and business spending and thus increases economic activity. by comparison, the federal reserve ’ s purchases of longer - term securities, by lowering term premiums, put downward pressure directly on longer - term interest rates. by easing conditions in credit and financial markets, for example, deflation probabilities inferred from prices of certain inflation - indexed bonds increased during this period. bis central bankers ’ speeches these actions encourage spending by households and businesses through essentially the same channels as conventional monetary policy. a wide range of market indicators supports the view that the federal reserve ’ s recent actions have been effective. for example, since august, when we announced our policy of reinvesting principal payments on agency debt and agency mbs and indicated that we were considering more securities purchases, equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation - indexed securities has risen to historically more normal levels. yields on 5 - to 10 - year nominal treasury securities initially declined markedly as markets priced in prospective fed purchases ; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities purchases. all of these developments are what one would expect to see when monetary policy becomes more accommodative, whether through conventional or less conventional means. interestingly, these market responses are almost identical to those that