##c should consider articulating a benchmark two - year time horizon for returning inflation to the 2 percent goal. ( two years is a good choice for a benchmark because monetary policy is generally thought to affect inflation with about a twoyear lag. ) right now, although the fomc has a 2 percent inflation objective over the long run, it has not specified any time frame for achieving that objective. this lack of specificity suggests that appropriate monetary policy might engender inflation that is far from the 2 percent target for years at a time and thereby creates undue inflation ( and related employment ) uncertainty. relatedly, the lack of a public timeline for a goal can sometimes lead to a lack of urgency in the pursuit of that goal. i believe that, if the fomc publicly articulated a reasonable time benchmark for achieving the inflation goal, the committee would be led to pursue its inflation target with even more alacrity. some might argue that this kind of time horizon is impractical. in fact, many central banks incorporate a similar timing benchmark. for example, the bank of canada typically makes its monetary policy choices so that the inflation rate is projected to return to 2 percent within two years. 2 i say “ typically ” – there are certainly situations in which the bank of canada chooses policy so that inflation is projected to return to target more slowly ( sometimes taking as long as three years ) or more rapidly ( sometimes as quickly as 18 months ). but it continues to treat two years as a benchmark, in the sense that it feels compelled to explain why it is choosing a different time horizon. to sum up : i ’ ve suggested that the fomc clarify that its inflation target is symmetric and that the committee typically seeks to achieve that target within a two - year horizon. let me emphasize that these two suggestions represent clarifications, not alterations. the framework statement, as written, is completely consistent with the formulations of price stability that i ’ ve proposed. however, the problem with the current statement is that it is also consistent with other interpretations of price stability ( such as a 10 - year horizon for returning inflation to the desired target ). the additional clarity in the framework statement would help the public understand the likely evolution of monetary policy. i ’ ve suggested that the fomc should clarify that it has a symmetric inflation objective, and a two - year horizon for achieving that objective. with those goals, it would be inappropriate for the f

##omc to reduce its level of accommodation if its outlook is that inflation will be below 2 percent over the following two years. after all, if the fomc were to tighten policy in such a situation, it would be deliberately delaying the progress of inflation toward the 2 percent objective. such an action would weaken the credibility of the fomc ’ s stated two - year horizon. this conclusion about appropriate monetary policy sheds light on the ongoing public conversation about whether the fomc should begin targeting a higher range for the fed funds rate sometime in 2015. as you can see from the graph before you, inflation has been low for a long time. inflation tends to be highly persistent, and so this long stay below target suggests that it will take some time for inflation to get back to 2 percent. indeed, my benchmark outlook is that pce inflation will not rise back to 2 percent until 2018. this sluggish inflation outlook implies that, at any fomc meeting held during 2015, inflation would be expected to be below 2 percent over the following two years. it would be inappropriate for the fomc to raise the target range for the fed funds rate at any such meeting. to be clear : there is uncertainty about the evolution of the inflation outlook, and so this conclusion about the timing of lift - off is necessarily data - dependent. the language changes to the framework statement that i ’ ve suggested would not tell the public exactly when interest “ monetary policy, ” bank of canada, may 29, 2012. bis central bankers ’ speeches rates are going to rise. but these changes would allow the public to have a better understanding of what kind of data would engender the first interest rate increase. conclusions let me wrap up. most of the conversation about monetary policy in this country concerns what the fomc is doing – how many assets is the committee buying this month? how low is the committee keeping interest rates? these are, no doubt, important questions, especially for those in the financial sector. but i ’ d like to encourage more discussion of the more important question for most americans : how is the fomc doing in terms of meeting its mandated congressional goals? i hope that my remarks today about the fomc ’ s goals, and its communication about those goals, will be helpful in steering the conversation in this direction. thanks for listening. i look forward to taking your questions. bis central bankers ’ speeches