recession, or even in response to subpar growth, becomes an empirical matter. however much they do, we have another stabilizer for the economy. as demand growth heats up, the central bank will raise short - term rates to try to limit the boom and the resulting inflation. as recessions threaten, the central bank will lower short - term rates to try to limit the downturn. discretionary fiscal policy? with this long - run strategy in place, and with at least two shock absorbers - - one monetary, one fiscal - we are now ready for the sixty - four dollar question. in the average recession, should there be additional discretionary fiscal actions? for such actions to be effective, they must satisfy three conditions : • they should stimulate spending. • they should be instituted quickly. • they should be reversed quickly or automatically. the reason speed and reversibility are important is that most recessions are not very long, averaging about twelve months in the united states. if some expansionary action comes into effect late in a recession, say in the twelfth month, it is likely to add to the vigor of the next expansion and hence increase business - cycle volatility. reversibility is also important because of the overall budget rule discussed earlier. if the general budget were already in approximate balance, any continuing expansionary fiscal action taken on top of that would generate normal deficits, not normal budget balance. there is a limited set of fiscal actions that satisfy all these conditions. many of the commonly discussed proposals fall short on at least one ground. by way of illustration, i will discuss a few that have been mentioned in recent debates. extend unemployment insurance. unemployment insurance benefits run out after twenty - six weeks in the united states. in general having a time limit to control caseloads is helpful - - the basic idea of unemployment insurance is to provide temporary, not permanent, support to unemployed workers. but in recessions, when unemployed workers have much more difficulty in getting new jobs, it may make sense for policy to be more lenient by extending time limits. such extensions have been enacted in nearly all postwar u. s. recessions. the extensions would provide benefits to unemployed workers who might have trouble maintaining their pre - unemployment standard of living, implying that the extensions should stimulate consumption spending. the extensions, say to thirty - nine weeks, could be made for a defined period, such as a year. even if the period exceeded a year, most of the budget dollars would

initiating foreclosure on loans held in the federal reserve system. federal reserve bank of boston, federal reserve bank of cleveland, board of governors of the federal reserve system, and others ( 2010 ), reo vacant properties : strategies for neighborhood stabilization. federal reserve system, mortgage outreach and research efforts ( more ) initiative ( 2010 ), addressing the impact of the foreclosure crisis : federal reserve mortgage outreach and research efforts ( chicago : federal reserve bank of chicago ). conclusion in summary, the federal reserve has been actively working to mitigate the harm to consumers and markets caused by problems in mortgage loan origination, securitization, and loan foreclosures. we are participating in interagency examinations of the foreclosure processes and controls in the financial institutions that control the majority of the nation ’ s mortgages. we are conducting examinations of lenders ’ and servicers ’ loan modification efforts. in response to the fallout from the financial crisis, the federal reserve has helped stabilize the mortgage market and improve financial conditions more broadly, thus promoting economic recovery. as the foreclosure crisis has intensified, federal reserve staff in our research, community development, and supervision and regulation divisions have actively collaborated to support foreclosure prevention at the local level and promote neighborhood stabilization initiatives. these efforts reflect a continuation of actions undertaken by the federal reserve system since the start of the financial crisis. we remain committed to the goal of stabilized financial markets that promote economic recovery. thank you for holding this important hearing today, and i would be happy to answer any questions that you may have.