sold back into the market. so the odds are high that the purchase programs that the fed has undertaken in support of the recovery will end up reducing, not increasing, the federal debt, both through the interest earnings we send the treasury and because a stronger economy tends to lead to higher tax revenues and reduced government spending ( on unemployment benefits, for example ). even though our activities are likely to result in a lower national debt over the long term, i sometimes hear the complaint that the federal reserve is enabling bad fiscal policy by keeping interest rates very low and thereby making it cheaper for the federal government to borrow. i find this argument unpersuasive. the responsibility for fiscal policy lies squarely with the administration and the congress. at the federal reserve, we implement policy to promote maximum employment and price stability, as the law under which we operate requires. using monetary policy to try to influence the political debate on the budget would be highly inappropriate. for what it ’ s worth, i think the strategy would also likely be ineffective : suppose, notwithstanding our legal mandate, the federal reserve were to raise interest rates for the purpose of making it more expensive for the government to borrow. such an action would substantially increase the deficit, not only because of higher interest rates, but also because the weaker recovery that would result from premature monetary tightening would further widen the gap between spending and revenues. would such a step lead to better fiscal outcomes? it seems likely that a significant widening of the deficit – which would make the needed fiscal actions even more difficult and painful – would worsen rather than improve the prospects for a comprehensive fiscal solution. i certainly don ’ t underestimate the challenges that fiscal policymakers face. they must find ways to put the federal budget on a sustainable path, but not so abruptly as to endanger the economic recovery in the near term. in particular, the congress and the administration will soon have to address the so - called fiscal cliff, a combination of sharply higher taxes and reduced spending that is set to happen at the beginning of the year. according to the congressional budget office and virtually all other experts, if that were allowed to occur, it would likely throw the economy back into recession. the congress and the administration will also have to raise the debt ceiling to prevent the treasury from defaulting on its obligations, an outcome that would have extremely negative consequences for the country for years to come. achieving these fiscal goals would be even more difficult if monetary policy were not helping support the economic recovery. what is

the fed has a number of ways to influence short - term rates ; basically, they involve steps to affect the supply, and thus the cost, of short - term funding. bis central bankers ’ speeches last month, my colleagues and i used both tools – securities purchases and communications about our future actions – in a coordinated way to further support the recovery and the job market. why did we act? though the economy has been growing since mid - 2009 and we expect it to continue to expand, it simply has not been growing fast enough recently to make significant progress in bringing down unemployment. at 8. 1 percent, the unemployment rate is nearly unchanged since the beginning of the year and is well above normal levels. while unemployment has been stubbornly high, our economy has enjoyed broad price stability for some time, and we expect inflation to remain low for the foreseeable future. so the case seemed clear to most of my colleagues that we could do more to assist economic growth and the job market without compromising our goal of price stability. specifically, what did we do? on securities purchases, we announced that we would buy mortgage - backed securities guaranteed by the government - sponsored enterprises at a rate of $ 40 billion per month. those purchases, along with the continuation of a previous program involving treasury securities, mean we are buying $ 85 billion of longer - term securities per month through the end of the year. we expect these purchases to put further downward pressure on longer - term interest rates, including mortgage rates. to underline the federal reserve ’ s commitment to fostering a sustainable economic recovery, we said that we would continue securities purchases and employ other policy tools until the outlook for the job market improves substantially in a context of price stability. in the category of communications policy, we also extended our estimate of how long we expect to keep the short - term interest rate at exceptionally low levels to at least mid - 2015. that doesn ’ t mean that we expect the economy to be weak through 2015. rather, our message was that, so long as price stability is preserved, we will take care not to raise rates prematurely. specifically, we expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens. we hope that, by clarifying our expectations about future policy, we can provide individuals, families, businesses, and financial markets greater confidence about the federal reserve ’ s commitment to promoting a sustainable recovery and that, as a result, they will