exercise altogether. having evoked dr. seuss earlier, i can imagine his bidding the dots farewell with some ditty like this : “ standard deviation of the dots in the dot chart, ” by torsten slok, deutsche bank research, april 23, 2014. bis central bankers ’ speeches yet expressing the fomc participants ’ perceptions of, and possible reactions to, an assortment of future scenarios – however often the committee ’ s composition may change – does strike me as having some merit, if only to give markets insight into how the central bank might react under different circumstances. in the parlance of the trade, this is called “ state - based ” guidance. yet here, too, we have struggled. for example, until two meetings ago, we used an unemployment figure of 6½ percent as a point sometime after which we would begin to consider pulling back on monetary accommodation, then decided this wasn ’ t quite the ticket. this may be a little more inside baseball than you expected to hear today, but here ’ s the point : expect the fed to continue refining its communications. we are getting better at it. but to invoke the immortal words from the chain gang captain portrayed by strother martin in the 1967 movie cool hand luke : “ what we ’ ve got here is failure to communicate. ” we are working on it so that you and other bankers, market operators, businesses and consumers will develop the best possible insight into how your monetary authority will behave. i expect that our new chair, janet yellen, will play a significant role here as she uses her press conferences to explain what simply cannot be communicated with a series of dots or within the statement we release after each meeting. alas, there is congress now mind you, your monetary authority – your federal reserve – does not hold every card to your future in its hand. no matter how clearly we communicate, no matter how expertly we tailor our supervision of your banks, no matter how we conduct monetary policy, our work is necessary but not sufficient to the success of the louisiana, texas and u. s. economies. the fiscal authorities – congress and the executive branch – must do their job to provide the proper tax, spending and regulatory incentives for businesses to take advantage of the cheap and abundant money the fed has made possible and put it to work to grow, expand their payrolls and let america truly prosper. i will spare you my thoughts on congress ( it is not very central banker - like to resort

their lending attitudes. this has exerted strong downward pressure on the economy. most recently, a third stage has emerged. in this stage, delinquency rates of not only subprime - related products but also commercial real estate loans and consumer loans have been rising reflecting the sluggishness in the u. s. economy. as a result, a situation in which the sluggishness in the economy causes financial institutions'asset quality to deteriorate further – with further adverse impact on the economy – is becoming a cause for concern. to put it another way, at the third stage there are concerns about a negative feedback loop between financial markets, asset prices, and economic activity. many discussions have taken place on what kinds of lessons can be drawn from the u. s. subprime mortgage problem. since the nature and background of the problem are complex, i hesitate to draw lessons prematurely. it might be argued that the cause of the problem was investors'and financial institutions'lax risk management. this observation seems to me accurate, but it would not be true to say there were no warning signs about the accumulation of risks. we must therefore pursue the reason why many market participants made the mistakes that eventually led to the problem despite the warning signs. although solutions at this point have yet to fully emerge, several major issues – although not completely new – seem again to have come to the fore. looking back at previous bubbles in financial activities and asset prices, including japan's asset price bubble, we can see that many have occurred following a period of price stability and continued low interest rates. in the current phase too, investors and financial institutions eased their credit standards and increased dependence on loans or leverage, accelerating their " search for yield " through investment in, for example, securitized products. underlying this situation were excessively accommodative financial conditions and credit expansion on a global scale – amid a prolonged period of economic growth and low inflation. on the other hand, when bubbles burst, capital bases of financial institutions are impaired and the period of credit contraction begins, depressing economic activity and constraining the transmission of monetary policy. similar to cases when bubbles emerge, the current u. s. subprime mortgage problem keenly illustrates that it is difficult to recognize the bursting of a bubble as it happens. central banks should therefore pay due attention, in their conduct of monetary policy, to the negative effects that may arise from prolonged accommodative financial conditions