, some of the factors that have restrained the recovery persist. notably, households and businesses still appear quite cautious about the economy. for example, according to surveys, households continue to rate their income prospects as relatively poor and do not expect economic conditions to improve significantly. similarly, concerns about developments in europe, u. s. fiscal policy, and the strength and sustainability of the recovery have left some firms hesitant to expand capacity. in particular, the unusually warm weather this past winter may have brought forward some hiring in sectors such as construction where activity normally is subdued during the coldest months ; thus, some of the slower pace of job gains this spring may have represented a payback for that earlier hiring. in addition, the estimated seasonal factors for some economic indicators may have been influenced by the timing of the steepest part of the decline in activity during the 2008 – 09 winter months ; if so, the seasonal adjustment process may have resulted in an overstatement of economic activity this past winter and the understatement of activity in other months. for further discussion, see ben s. bernanke ( 2012 ), “ recent developments in the labor market ”, speech delivered at the national association for business economics annual conference, washington, march 26. bis central bankers ’ speeches the depressed housing market has also been an important drag on the recovery. despite historically low mortgage rates and high levels of affordability, many prospective homebuyers cannot obtain mortgages, as lending standards have tightened and the creditworthiness of many potential borrowers has been impaired. at the same time, a large stock of vacant houses continues to limit incentives for the construction of new homes, and a substantial backlog of foreclosures will likely add further to the supply of vacant homes. however, a few encouraging signs in housing have appeared recently, including some pickup in sales and construction, improvements in homebuilder sentiment, and the apparent stabilization of home prices in some areas. banking and financial conditions in the united states have improved significantly since the depths of the crisis. notably, recent stress tests conducted by the federal reserve of the balance sheets of the 19 largest u. s. bank holding companies showed that those firms have added about $ 300 billion to their capital since 2009 ; the tests also showed that, even in an extremely adverse hypothetical economic scenario, most of those firms would remain able to provide credit to u. s. households and businesses. lending terms and standards have generally become less restrictive in recent quarters, although some

continue to restrain inflationary pressures. given these conditions, inflation is expected to remain at or slightly below the 2 percent rate that the federal open market committee ( fomc ) judges consistent with our statutory mandate to foster maximum employment and stable prices. with unemployment still quite high and the outlook for inflation subdued, and in the presence of significant downside risks to the outlook posed by strains in global financial markets, the bis central bankers ’ speeches fomc has continued to maintain a highly accommodative stance of monetary policy. the target range for the federal funds rate remains at 0 to 1 / 4 percent, and the committee has indicated in its recent statements that it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate at least through late 2014. in addition, the federal reserve has been conducting a program, announced last september, to lengthen the average maturity of its securities holdings by purchasing $ 400 billion of longer - term treasury securities and selling an equal amount of shorter - term treasury securities. the committee also continues to reinvest principal received from its holdings of agency debt and agency mortgage - backed securities ( mbs ) in agency mbs and to roll over its maturing treasury holdings at auction. these policies have supported the economic recovery by putting downward pressure on longer - term interest rates, including mortgage rates, and by making broader financial conditions more accommodative. the committee reviews the size and composition of its securities holdings regularly and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability. the economy ’ s performance over the medium and longer term also will depend importantly on the course of fiscal policy. fiscal policymakers confront daunting challenges. as they do so, they should keep three objectives in mind. first, to promote economic growth and stability, the federal budget must be put on a sustainable long - run path. the federal budget deficit, which averaged about 9 percent of gdp during the past three fiscal years, is likely to narrow in coming years as the economic recovery leads to higher tax revenues and lower income support payments. nevertheless, the congressional budget office ( cbo ) projects that, if current policies continue, the budget deficit would be close to 5 percent of gdp in 2017 when the economy is expected to be near full employment. 3 moreover, under current policies and reasonable economic assumptions, the cbo projects that the structural budget gap and the ratio of federal debt to gdp will trend upward