skills and experience in the first place – developments that could significantly reduce their productivity and earnings in the longer term. the loss of output and earnings associated with high unemployment also reduces government revenues and increases spending, thereby leading to larger deficits and higher levels of debt. the recent increase in gasoline prices, which reflects both higher crude oil prices and wider refining margins, is hitting family budgets. however, overall inflation remains low. over the second half of 2012, the price index for personal consumption expenditures rose at an annual rate of 1 - 1 / 2 percent, similar to the rate of increase in the first half of the year. measures of longer - term inflation expectations have remained in the narrow ranges seen over the past several years. against this backdrop, the federal open market committee data for the fourth quarter of 2012 from the national income and product accounts reflect the advance estimate released on january 30, 2013. bis central bankers ’ speeches ( fomc ) anticipates that inflation over the medium term likely will run at or below its 2 percent objective. monetary policy with unemployment well above normal levels and inflation subdued, progress toward the federal reserve ’ s mandated objectives of maximum employment and price stability has required a highly accommodative monetary policy. under normal circumstances, policy accommodation would be provided through reductions in the fomc ’ s target for the federal funds rate – the interest rate on overnight loans between banks. however, as this rate has been close to zero since december 2008, the federal reserve has had to use alternative policy tools. these alternative tools have fallen into two categories. the first is “ forward guidance ” regarding the fomc ’ s anticipated path for the federal funds rate. since longer - term interest rates reflect market expectations for shorter - term rates over time, our guidance influences longer - term rates and thus supports a stronger recovery. the formulation of this guidance has evolved over time. between august 2011 and december 2012, the committee used calendar dates to indicate how long it expected economic conditions to warrant exceptionally low levels for the federal funds rate. at its december 2012 meeting, the fomc agreed to shift to providing more explicit guidance on how it expects the policy rate to respond to economic developments. specifically, the december postmeeting statement indicated that the current exceptionally low range for the federal funds rate “ will be appropriate at least as long as the unemployment rate remains above 6 - 1 / 2 percent, inflation between one and two years ahead is projected to be no more than a half percentage

trip investment curbed the incentive to accumulate shortterm assets. of course, freely flowing capital brings costs along with benefits. the short - term nature of capital flows implies that their direction can reverse quickly, sometimes with quite disturbing consequences. as opposed to the 19th century, we have mechanisms to help cushion the effects of crises and a willingness to change national monetary policies when the need arises. the role of policy as with our great grandparents, our own economies are made better by our interaction with the wider world around us. international trade in goods, services, and assets are the chief means of facilitating that interaction. and those interactions and connections in recent decades have become stronger. to some extent, we can credit good national policy making for this. the progress in lowering trade barriers since world war ii marks the triumph of putting an important idea into practice - that international trade benefits all nations. indeed, in every nation, those benefits are shared by people spread across quite different income brackets. the pity is that this idea has been well known in the economics profession for the two past centuries. to be sure, some of this recent progress was bred by necessity, as national governments came to appreciate the patent inevitability of globalization. by lowering the costs of transacting and sharing information, technology has reduced market frictions and provided significant impetus to the process of broadening world markets. expanding markets, in turn, have increased competition and narrowed the ability of governments to influence economic outcomes. in recognition both of the prosperity possible through an open trading system and of their lessened ability to halt that tide, many governments have reduced tariffs and trade barriers and, when necessary, deregulated markets. these actions themselves have further promoted globalization. the risks we face understanding the process by which this progress has been accomplished highlights a critical risk going forward. simply put, good economic performance has made it easier to make good economic policy. however, any notable shortfall in economic performance from the exemplary standard of recent years runs the risk of reviving mistrust of market - oriented systems, even among conventional policymakers. thankfully, such views are not widespread, and most fall quickly to the force of reason. still, the arguments against the global trading system that emerged first in seattle and then spread over the past year arguably touched a chord in many people, in part by raising the fear that they would lose local political control of their destinies. as some analysts have noted, protests have arisen not against “ economic forums ” per