as representing a decline in labor market slack. this view is not uncontroversial. from an accounting perspective, the unemployment rate can fall for two reasons : people can find jobs, or people can stop searching for jobs. much of the decline since november is attributable to people who were formerly unemployed choosing to no longer look for work. nonetheless, it still seems appropriate to me to view this change in labor market conditions as representing a decline in labor market slack. intuitively, people who are non - employed, but not actively looking for work, are less likely to apply for any given job opening. hence, the recent departures from the labor force imply that there is less downward pressure on wages. almost by definition, from an economic perspective, this means that there is less slack in the labor market. the rise in core inflation in the first part of the year is consistent with the view that labor market slack has fallen. but some observers argue that core pce inflation is only temporarily high because of the tragic events in japan or transitory spikes in commodity prices. if so, the disinflationary pressures of 2010 should soon reappear in the form of a sharp decline in current and expected core pce inflation rates. in that eventuality, increasing policy accommodation might well be appropriate. bis central bankers ’ speeches i ’ ve argued here that the committee increased the level of accommodation when standard rules seem to call for standing pat or even reducing accommodation. what are the costs of such a move? the standard rules are meant to guide the economy toward the committee ’ s medium - term objectives. if monetary policy is consistently overly accommodative relative to these rules, the committee risks generating inflation higher than 2 percent for several years. as i ’ ve discussed, such an outcome could have significant consequences for inflation and inflation expectations. future committees might have to endure large losses in employment in order to fix these consequences. conclusion i mentioned that i dissented from the committee ’ s last decision in august. two other presidents dissented – and there have not been as many dissents at one meeting in nearly 20 years. in my view, this level of disagreement reflects two aspects of the current setting. the first is related to the leadership of the committee. chairman bernanke strongly welcomes the airing of disparate views within the meeting. he clearly believes – as i do – that the united states has a decentralized central bank because we will get better monetary policy

##omc to reduce its level of accommodation if its outlook is that inflation will be below 2 percent over the following two years. after all, if the fomc were to tighten policy in such a situation, it would be deliberately delaying the progress of inflation toward the 2 percent objective. such an action would weaken the credibility of the fomc ’ s stated two - year horizon. this conclusion about appropriate monetary policy sheds light on the ongoing public conversation about whether the fomc should begin targeting a higher range for the fed funds rate sometime in 2015. as you can see from the graph before you, inflation has been low for a long time. inflation tends to be highly persistent, and so this long stay below target suggests that it will take some time for inflation to get back to 2 percent. indeed, my benchmark outlook is that pce inflation will not rise back to 2 percent until 2018. this sluggish inflation outlook implies that, at any fomc meeting held during 2015, inflation would be expected to be below 2 percent over the following two years. it would be inappropriate for the fomc to raise the target range for the fed funds rate at any such meeting. to be clear : there is uncertainty about the evolution of the inflation outlook, and so this conclusion about the timing of lift - off is necessarily data - dependent. the language changes to the framework statement that i ’ ve suggested would not tell the public exactly when interest “ monetary policy, ” bank of canada, may 29, 2012. bis central bankers ’ speeches rates are going to rise. but these changes would allow the public to have a better understanding of what kind of data would engender the first interest rate increase. conclusions let me wrap up. most of the conversation about monetary policy in this country concerns what the fomc is doing – how many assets is the committee buying this month? how low is the committee keeping interest rates? these are, no doubt, important questions, especially for those in the financial sector. but i ’ d like to encourage more discussion of the more important question for most americans : how is the fomc doing in terms of meeting its mandated congressional goals? i hope that my remarks today about the fomc ’ s goals, and its communication about those goals, will be helpful in steering the conversation in this direction. thanks for listening. i look forward to taking your questions. bis central bankers ’ speeches