18. board of governors of the federal reserve system ( 2011 ), “ fomc statement, ” press release, august 9. see, for example, board of governors, “ fomc statement, ” in note 2. bis central bankers ’ speeches to a specific course for the federal funds rate. market participants are naturally interested in gaining greater insight into how shifts in the economic outlook would affect the likely timing and pace of policy firming. as noted in the minutes of the august and september fomc meetings, the committee has discussed possible approaches to enhance its forward guidance along these lines – that is, to provide greater insight concerning its “ reaction function. ” 4 one potentially promising way to clarify the dependence of policy on economic conditions would be for the fomc to frame the forward guidance in terms of specific numerical thresholds for unemployment and inflation. such an approach was discussed by my colleague charles evans, president of the federal reserve bank of chicago, in a recent speech. 5 evans suggested that the fomc could indicate its intention to continue holding the federal funds rate close to zero as long as the unemployment rate exceeds a given threshold, conditional on the medium - term inflation outlook remaining at or below a specified level. 6 such an approach could be helpful in facilitating public understanding of how various possible shifts in the economic outlook would be likely to affect the anticipated timing of policy firming. for example, if there were a further downward revision of the economic outlook, investors would recognize that the conditions for policy firming would not be reached until a later date and hence would have a more concrete basis for extending the time period during which they expect the federal funds rate to remain near zero. the approach of numerically specifying the values of unemployment and inflation that could prompt policy tightening is not without potential pitfalls, however. for example, such thresholds could potentially be misunderstood as conveying the committee ’ s longer - run objectives rather than the conditions surrounding the likely onset of policy firming. thus, in addition to giving careful consideration to this particular approach, it seems sensible to explore other potential enhancements to fomc communications – a topic to which i will return shortly. securities holdings by the federal reserve the fomc has also provided monetary accommodation by modifying the size and composition of the federal reserve ’ s securities holdings. in particular, during 2009 and early 2010, the federal reserve purchased about $ 1. 4 trillion in agency mortgage - backed securities ( mbs ) and agency debt securities and

over the next five years currently is around 1 - 3 / 4 percent. the substantial amount of resource slack that is projected to remain in u. s. labor and product markets over the next several years, coupled with sustained growth in productivity, should continue to restrain the growth in labor costs, helping to contain inflationary pressures. in fact, there is a risk that disinflationary pressures could intensify if the recovery faltered. indeed, based on imputations from tips prices, market participants ’ assessments of the odds of outright deflation have risen significantly in recent months. monetary policy since the onset of the financial crisis, the federal reserve has employed a wide array of policy tools to foster our statutory objectives of maximum employment and price stability. in particular, with conventional policy having pushed short - term nominal interest rates close to zero, the fomc – like a number of other major central banks around the world – has provided additional monetary accommodation by modifying our forward policy guidance and by adjusting our securities holdings. forward policy guidance the conventional tool of u. s. monetary policy is to make adjustments to the target for the federal funds rate. that target, which stood at 5 - 1 / 4 percent as of mid - 2007, was subsequently brought down to a range of 0 to 1 / 4 percent, and the effective federal funds rate has been maintained in that range since december 2008. since that time, the fomc has provided forward guidance about the anticipated future path of the federal funds rate. for example, in each meeting statement from march 2009 through june 2011, the committee indicated our expectation that economic conditions “ are likely to warrant exceptionally low levels for the federal funds rate for an extended period. ” 1 at our august meeting, the committee decided to provide more - specific information about the likely time horizon by substituting the phrase “ at least through mid - 2013 ” for the phrase “ for an extended period. ” 2 this clarification appears to have reduced market uncertainty about the committee ’ s current policy expectations. the committee ’ s guidance refers to a specific calendar date, which could be periodically revised by the committee if appropriate. however, it is explicitly framed as contingent on economic conditions, including “ low rates of resource utilization and a subdued outlook for inflation over the medium run. ” 3 importantly, it is not stated as an unconditional commitment see, for example, board of governors of the federal reserve system ( 2009 ), “ fomc statement, ” press release, march