whim that currently struck investors ’ fancy. if you were to take our reading of the economy as if from a sacred text, the unique sources of information and skills that you have refined would go untapped. it is far better that we should treat each other warily so as to keep each other sharp. by full information, i mean that the federal reserve should do its best to read signals from markets and to communicate to markets its policy intentions. the domestic and foreign open market desks of the federal reserve bank of new york are virtually in constant communication with market participants and routinely distill that information for their policy - making principals. my fellow governors and i routinely receive from our staff a translation of the term structure of treasury yields into implied forward rates, volatility inferred from options prices, and paths for expected monetary policy action consistent with futures prices. of late, the information we receive has included inferences drawn from quotes on the treasury ’ s inflation protected securities. in principle, such information should be helpful in interpreting all manner of economic behavior, including the pricing of financial instruments and wage setting. as yet, i must admit that, in the eight months since the first issue, the volume of trade and the apparent lack of interest in related contracts on the futures market has been somewhat disappointing. the treasury ’ s strong commitment to this product, reflected in the range of maturities that have and will be sold and the volume of securities sold, should do much to foster this market, as will the growing realization by market participants that indexed debt will represent an increasing share of the nation ’ s debt obligations. but even after we have reliable quotes on a more complete indexed term structure, considerable analysis must still be done before we can cull readings of inflation expectations and inflation risk from market prices. as you well appreciate, the spread of the yield on a nominal instrument over its inflation - protected counterpart includes compensation for expected inflation, inflation uncertainty, and differential risk characteristics. until we have a long enough history to be more certain of the relative contributions of each, we must watch, wait, and learn. communication must flow two ways. over the past few years, i am pleased to say, the fomc has significantly enhanced the information it provides to the public. that list includes announcing actions - - and the reasons underlying them - - within the day that the decisions are made and providing complete transcripts of meetings with a five year lag. we continue to release a comprehensive record of policy

of the yield curve. the spread between long and short - term rates is often viewed as one of the most reliable cyclical indicators and a widening as a measure of the increased stimulus of monetary policy. but i viewed the widening in this episode as evidence of the reduced effectiveness of monetary policy in an environment where actions by bond - market participants were preventing long - term interest rates from adjusting in response to the policy - induced decline in short - term rates. at its peak in mid - 1992, the long - term treasury bond yielded 475 basis points over the three - month bill rate, about three times the average for the prior three decades. true, as the full dimension of the effects of the credit crunch became apparent, yields fell from those heights. but in the interim, monetary policy ’ s intentions were blunted by the market ’ s misreading of the economy. this probably prolonged the need for ease and further accentuated the required easing of the federal funds rate. as another example, i have spent enough of my career projecting near - term economic trends to be familiar with a forecaster ’ s favorite friend - - momentum. but momentum can easily be misjudged. it is easy to fall into the trap of presuming that what an economic actor did last is what that actor will do next. thus, market prices tend to extrapolate that changes in monetary policy cluster in the same direction. this is a rule that works often enough, but, as a look back to 1994 and 1995 reminds us, not always. by mid - 1994, the fomc had substantially raised its intended federal funds rate, but market prices seemed to say that enough was not enough. the tightenings in may and august of that year, for example, were greeted by a roughly parallel shift up in money market futures rates, implying that the actions had not gotten the federal reserve any closer to the goal line - - instead, the goal line had been pushed back. and the fed indeed did continue to tighten through early 1995. but by late 1994 and early 1995, the term structure spreads in financial markets remained very wide, implying an expectation of still significant further tightening. as a result, the restraint associated with the policy action was amplified. in retrospect, a tighter focus on fundamentals - - that policy was acting in a preemptive fashion to contain inflation, rather than an extrapolation of the sequence of recent policy actions - - would have helped to cap the rise in longer -