greater momentum in the prospects for economic growth or to a rapid escalation in inflation, then the case for further monetary policy easing might have seemed less pressing. however, such was not the case. the federal reserve publishes a summary of economic projections ( sep ) four times a year in conjunction with the fomc minutes. as shown in the november sep, most committee participants anticipated that the economy would recover only gradually and projected that the unemployment rate would still be at around 8 percent at the end of 2012 – an outlook that is shared by most outside forecasters. similarly, committee participants generally expected inflation to rise very gradually toward levels consistent with the federal reserve ’ s mandate. moreover, continuing downside risks to the outlook for economic activity and inflation strengthened the case for providing additional monetary policy accommodation, thereby reducing the risk of another downturn in economic activity or a further decline in inflation. the design of the asset purchase program in weighing its policy options last autumn, the committee gave careful consideration to the question of whether further purchases of longer - term treasury securities were likely to be effective in fostering economic recovery and bringing inflation back up to levels judged to be consistent with the dual mandate. 3 in my judgment, both theoretical analysis and empirical evidence suggested that such purchases could provide effective stimulus by keeping longerterm interest rates lower than they would otherwise be. this downward trend in inflation has not been confined to any specific sectors of the economy, such as housing. for example, the federal reserve bank of dallas constructs a trimmed - mean rate of pce inflation by removing the tails of the distribution of monthly price changes for disaggregated spending categories. that measure of underlying inflation has also declined fairly steadily since mid - 2008 and dipped slightly below 1 percent last autumn. moreover, diffusion indexes of price changes – which subtract the percentage of items in the consumption basket with price increases from the percentage of items with price decreases – also fell noticeably over this period, providing further evidence that the decline in inflation has been widespread across many categories of consumer spending. as indicated in the minutes of the november fomc meeting, the committee has also considered the potential costs and benefits of setting a peg for a term interest rate. while targeting the yield on a term security could be an effective way to reduce longer - term interest rates, such an approach might require the federal reserve to make an open - ended commitment to purchasing longer - term securities. bis central bankers ’ speeches the underlying theory, in which asset prices

janet l yellen : the federal reserve ’ s asset purchase program speech by ms janet l yellen, vice chair of the board of governors of the federal reserve system, at the brimmer policy forum, allied social science associations annual meeting, denver, colorado, 8 january 2011. * * * i am delighted to participate in this brimmer policy forum, not least because this year marks the 45th anniversary of andrew ’ s appointment by president johnson as a governor of the federal reserve board. andrew ’ s ongoing work in organizing this annual forum reflects his long - standing commitment to fostering economic analysis and public discourse on key policy issues. in my remarks today, i will discuss the rationale for the decision by the federal open market committee ( fomc ) in november to initiate a new program of asset purchases, and i will address some frequently asked questions ( faqs ) regarding the program ’ s economic and financial effects both here and abroad. 1 the purpose of the new asset purchase program, like all of the monetary policy actions taken by the fomc since the onset of the global financial crisis, is to fulfill our congressionally mandated objectives of promoting maximum employment and price stability. in pursuit of these goals, the fomc brought the target federal funds rate down close to zero by late 2008 ; conducted large - scale purchases of longer - term securities during 2009 and early 2010 ; and, last summer, modified its reinvestment policy to keep the federal reserve ’ s balance sheet from shrinking as mortgage - related securities matured or were redeemed. in early november, the committee announced that it intends to purchase an additional $ 600 billion in longer - term treasury securities by the middle of this year. the rationale for the asset purchase program macroeconomic conditions to understand the rationale for our asset purchase program, it is helpful to review the evolution of macroeconomic conditions over the past several years. the national bureau of economic research has dated the recession as having begun in december 2007, but the pace of economic contraction accelerated in the wake of the lehman brothers collapse in september 2008 and the ensuing disruption to global financial markets. as shown in figure 1, the unemployment rate rose from around 5 percent in the spring of 2008 to about 10 percent by the autumn of 2009 and has stayed well above 9 percent since then. most observers, including myself, judge this level of unemployment to be much higher than levels consistent with full employment and stable inflation. for example, in a recent survey of professional forecast