in turn discourages would - be buyers from entering the market. continued house price declines could lead to even more defaults, foreclosures and distressed sales, undermining wealth, confidence and spending. breaking this vicious cycle is one of the most pressing issues facing policymakers. next, cutbacks in employment and spending by state and local governments intensified in 2011 and are likely to continue. looking forward, states are likely to cut spending further as the federal government stimulus aid to states peters out. in addition, by current law, in 2012 the federal government will end much of the support it has been providing to the economy through stimulus programs. as these measures expire, households will be able to consume less and businesses will have less incentive to invest for a while. plus, the new budget control act calls for additional sharp cuts in federal spending. our nation needs to get its public finances in order. done correctly, with a focus on the long term, this could support confidence and growth. but it is very important to avoid excessive short - term cutbacks or tax increases that could harm the recovery. finally, the sovereign debt crisis in europe has weakened the outlook for global growth and with it, u. s. exports. to date, these effects have been much more acute in europe than here, but spillovers to the united states may occur, so we need to monitor them carefully. thus, our economy continues to face some serious headwinds. without robust growth, the economy is more vulnerable to negative shocks, which unfortunately seem to keep coming. it is like riding a bicycle – at a slow speed, the bicycle wobbles and the risk of falling rises. politics have not helped. the intense debate around raising the debt ceiling took a toll on confidence. more recently, the difficulties in europe and lower u. s. growth prospects made investors less inclined to take risks, spurring a major stock market sell - off and widening credit spreads. all these events increase the downside risks to growth. let me turn now to the inflation outlook. as you may know, the fomc has two charges : promoting stable prices and sustainable growth. this has been a tough year on both counts. unemployment remains too high. at the same time, inflation has risen more than expected. nevertheless, because monetary policy works with a lag, we have to make policy based not on where inflation is today, but where it is headed in the future. i believe that underlying fundamentals will help

, we consult our researchers and add critical information that we learn from our boards of directors, regional councils and community leaders, such as you. at the new york fed, we continually track conditions in our district and have created tools for that purpose. for example, my staff produces monthly indexes of economic activity – essentially local measures of output – for the city, new jersey and new york. we have also started a consumer panel to track local household credit conditions. in addition, we have a new survey about credit and financing for small businesses. almost 900 regional businesses responded to our may 2011 poll – nearly 10 percent from the bronx. if you, as part of a small business, would like to participate in our january poll, please pass your card to my colleagues in the audience. this december we will host a workshop for the new york city metro area ’ s small businesses – to provide information about credit enhancements and loans from the small business bis central bankers ’ speeches administration. i will send your president, mr. caro, details about how to register. i hope to see you in at the new york fed in lower manhattan in december. as you know, even states as wealthy as new york have large pockets of poverty. so, we target some key initiatives specifically to low - and moderate - income groups. we have worked hard to help neighborhoods, including some in the bronx, that face high foreclosure rates. later today, i ’ ll tour some hard - hit areas with the city ’ s commissioner of housing preservation and development. to share what we learn about our diverse district, we have a rich website. i invite you to visit newyorkfed. org to explore our detailed maps and information on small business, credit and housing conditions. finally, and crucially, in the aftermath of the financial crisis, we are working with fed colleagues and other agencies to help put the nation ’ s financial system on a firmer footing. yet, much remains to be done and we are determined to keep at it. i recognize fully that there can be no return to pre - crisis business as usual – whether on the part of the financial sector or on the part of regulators like ourselves. all in all, there is a lot to keep my colleagues busy. national economic conditions now, let me update you on national economic conditions. put simply, growth in 2011 has been disappointing. we entered the year with some momentum, spurred by fiscal and monetary policy stimulus. u. s. economic