of the protracted debate about the necessary increase in the debt ceiling. similar effects could ensue as the debt ceiling and other difficult fiscal issues come into clearer view toward the end of this year. the most effective way that the congress could help to support the economy right now would be to work to address the nation ’ s fiscal challenges in a way that takes into account both the need for long - run sustainability and the fragility of the recovery. doing so earlier rather than later would help reduce uncertainty and boost household and business confidence. monetary policy in view of the weaker economic outlook, subdued projected path for inflation, and significant downside risks to economic growth, the fomc decided to ease monetary policy at its june meeting by continuing its maturity extension program ( or mep ) through the end of this year. the mep combines sales of short - term treasury securities with an equivalent amount of purchases of longer - term treasury securities. as a result, it decreases the supply of longerterm treasury securities available to the public, putting upward pressure on the prices of those securities and downward pressure on their yields, without affecting the overall size of the federal reserve ’ s balance sheet. by removing additional longer - term treasury securities from the market, the fed ’ s asset purchases also induce private investors to acquire other congressional budget office ( 2012 ), economic effects of reducing the fiscal restraint that is scheduled to occur in 2013 ( washington : cbo, may ). the effect of the fiscal cliff on real gdp is shown in table 2 ( p. 6 ). the effect of the fiscal cliff on employment, relative to a less restrictive alternative fiscal scenario that assumes that most expiring tax provisions are extended and that the spending sequestration does not take effect, is shown in table 3 ( p. 7 ). bis central bankers ’ speeches longer - term assets, such as corporate bonds and mortgage backed - securities, helping to raise their prices and lower their yields and thereby making broader financial conditions more accommodative. economic growth is also being supported by the exceptionally low level of the target range for the federal funds rate of 0 to 1 / 4 percent and the committee ’ s forward guidance regarding the anticipated path of the funds rate. as i reported in my february testimony, the fomc extended its forward guidance at its january meeting, noting that it expects that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low

levels for the federal funds rate at least through late 2014. the committee has maintained this conditional forward guidance at its subsequent meetings. reflecting its concerns about the slow pace of progress in reducing unemployment and the downside risks to the economic outlook, the committee made clear at its june meeting that it is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability. thank you. i would be pleased to take your questions. bis central bankers ’ speeches