' s estimates of the rate of growth of output and the unemployment rate that are sustainable in the long run in the united states, taking into account important influences such as the trend growth rates of productivity and the labor force, improvements in worker education and skills, the efficiency of the labor market at matching workers and jobs, government policies affecting technological development or the labor market, and other factors. the longer - run projections of inflation may be interpreted, in turn, as the rate of inflation that fomc participants see as most consistent with the dual mandate given to it by the congress - - that is, the rate of inflation that promotes maximum sustainable employment while also delivering reasonable price stability. this further extension of the quarterly projections should provide the public a clearer picture of the fomc's policy strategy for promoting maximum employment and price stability over time. also, increased clarity about the fomc's views regarding longer - run inflation should help to better stabilize the public's inflation expectations, thus contributing to keeping actual inflation from rising too high or falling too low. at the time of our last monetary policy report, the federal reserve was confronted with both high inflation and rising unemployment. since that report, however, inflation pressures have receded dramatically while the rise in the unemployment rate has accelerated and financial conditions have deteriorated. in light of these developments, the federal reserve is committed to using all available tools to stimulate economic activity and to improve financial market functioning. toward that end, we have reduced the target for the federal funds rate close to zero and we have established a number of programs to increase the flow of credit to key sectors of the economy. we believe that these actions, combined with the broad range of other fiscal and financial measures being put in place, will contribute to a gradual resumption of economic growth and improvement in labor market conditions in a context of low inflation. we will continue to work closely with the congress and the administration to explore means of fulfilling our mission of promoting maximum employment and price stability.

that regulatory requirements apply to each such firm and that the consequent supervision is effective. as to the issue of effectiveness, many of the current problems in the banking and financial system stem from risk - management failures at a number of financial institutions, including some firms under federal supervision. clearly, these lapses are unacceptable. the federal reserve has been involved in a number of exercises to understand and document the riskmanagement lapses and shortcomings at major financial institutions, including those undertaken by the senior supervisors group, the president's working group on financial markets, and the multinational financial stability forum. 1 based on the results of these and other efforts, the federal reserve is taking steps to improve regulatory requirements and risk management at regulated institutions. our actions have covered liquidity risk management, capital planning and capital adequacy, firm - wide risk identification, residential lending, counterparty credit exposures, and commercial real estate. liquidity and capital have been given special attention. the crisis has undermined previous conventional wisdom that a company, even in stressed environments, may readily borrow funds if it can offer high - quality collateral. for example, the inability of bear stearns to borrow even against u. s. government securities helped cause its collapse. as a result, we have been working to bring about needed improvements in institutions'liquidity risk - management practices. along with our u. s. supervisory colleagues, we are closely monitoring the liquidity positions of banking organizations – on a daily basis for the largest and most critical firms – and are discussing key market developments and our supervisory analyses with senior management. we use these analyses and findings from examinations to ensure that liquidity and funding management, as well as contingency funding plans, are sufficiently robust and incorporate various stress scenarios. looking beyond the present period, we also have underway a broader - ranging examination of liquidity requirements. similarly, the federal reserve is closely monitoring the capital levels of banking organizations on a regular basis and discussing our evaluation with senior management. as see senior supervisors group ( 2008 ), " observations on risk management practices during the recent market turbulence ), " march 6 ; president's working group on financial markets ( 2008 ), " policy statement on financial market developments, " march 13 ; and financial stability forum ( 2008 ), " report of the financial stability forum on enhancing market and institutional resilience, " april 7. part of our supervisory process, we have been conducting our own analysis of loss scenarios to anticipate