of policy committees, but it can make it challenging to arrive at a clear, consistent public explanation of a policy decision, because policymakers can arrive at the same policy position based on different rationales. good communication must also take into account uncertainty. understandably, market participants want to know what is going to happen next – to the economy and to policy. but we cannot say more than we know, and we should strive to avoid giving people the impression that we know more than we do. i'll touch on a number of these themes as i review recent federal reserve communications. before i do, i have one last comment : our communication strategy is a work in process – we are constantly looking for additional steps that could reasonably be expected to improve public understanding and policy effectiveness. however, we move slowly in changing what these views are my own and not necessarily those of my colleagues on the federal open market committee. we say in part because ill - conceived communication policy has the power to harm the economy, and, even if that harm were to be realized, the policy could be difficult to alter. enhanced economic projections as already noted, i believe that the additional information in the enhanced projections the fomc announced in november should be a substantial step forward in increasing public understanding of monetary policy decisions. 2 the enhanced projections give more information about the fomc's medium - term outlook for the economy. that's particularly important, because the lags in the effect of policy on economic activity and prices mean that policy decisions are necessarily based on a view of the likely path for the economy over several years, relative to the federal reserve's legislated objectives of maximum employment and stable prices. in that regard, one of the most significant aspects of the initiative is the lengthening of the forecast horizon from 1 - 1 / 2 to 2 years previously to about 3 years. shorter - term forecasts tend to be dominated by the interpretation of how recent shocks to the economy will play out. by lengthening the projection horizon, fomc members will also be giving a sense of their assessment of a number of important structural characteristics of the economy that influence the conduct of policy. for example, given the starting point for the outlook, the forecasts will trace out a path for the economy to preserve or reestablish maximum employment and price stability that will reflect fomc participants'views of the relative variation in output and inflation that is possible in the short run. in addition, fomc

participants'projections of growth and unemployment in the third year of their forecasts will be influenced significantly by their interpretation of maximum sustainable growth and resource utilization, given their understanding of the likely growth of productivity and structure of labor markets. and our projections for inflation in year three will depend importantly on our sense of what inflation rate is consistent with our mandates for employment and price stability. that projection, along with the path to year - three inflation, should help the public differentiate short - term shocks to price stability from the longer - term price trends it should use for planning purposes. over time, as actual inflation tends toward the year - three forecasts, inflation expectations may well become even more firmly anchored than they are today. in another change, the committee included total consumer inflation in its forecasts along with the core measure it had been using. we have always recognized that " price stability " was not intended to apply to a subset of prices that people paid. however, we have also found that excluding volatile food and energy prices generally gives a better sense of underlying inflation pressures that are likely to persist and dominate total inflation over time. hence, core inflation has been the most useful guide to the factors affecting policy when our forecast horizon was relatively short. because the final year or so of the longer horizon is heavily influenced by our longer - term objectives, a more comprehensive measure is now also useful and appropriate. fomc members will be making their forecasts quarterly, thereby adding two rounds to the semiannual forecasts keyed to our monetary policy reports and chairman bernanke's testimonies. economic circumstances, and thus the appropriate path for policy, can change rapidly, and we will continue to address those changes in our policy announcements and the the policy regarding enhanced projections was announced in board of governors of the federal reserve system ( 2007 ), press release, nov. 14. also, the new policy was discussed in a speech given by chairman bernanke that day ( ben s. bernanke, 2007, " federal reserve communications, " speech delivered at the cato institute 25th annual monetary conference, washington, nov. 14 ). and the first set of projections under the new policy was prepared in conjunction with the oct. 30 - 31, 2007, fomc meeting and released in the minutes of that meeting ( board of governors of the federal reserve system, 2007, press release, nov. 20 ). minutes for our meetings. however, the increased frequency of forecasts will give us more