, a completely different endeavour and unlikely to be possible in practice, in particular when global uncertainty severely clouds the medium - term outlook. 20 incidentally, most market criticism of the federal reserve ’ s dot plot focuses on the fact that the dots represent individual views rather than the committee ’ s joint assessment. 21 second, even a credible interest rate path may cause misperceptions. consider the current market environment that is characterised by regulatory - driven demand for high quality liquid assets and large securities holdings by central banks. one tangible consequence of these two factors is an increased demand for safe assets that has led to substantial and unprecedented negative term premia at the short end of the curve. this means that the path for rates truly expected by investors is likely to be materially higher than that suggested by plain forward rates. this greatly complicates the clarity of any guidance on the future path. a very simple way to see this is to compare market - based and survey - based expectations. you can see this on my next slide, where the grey shaded area represents the difference between the median fed funds rate projections in the new york fed ’ s survey of primary dealers and the nominal fed funds futures rates. 7 / 11 bis central bankers'speeches clearly, a good part of the discussion around this gap would vanish if the signals extracted from market prices were treated more carefully. the chart shows a snapshot of the situation earlier this year, but the argument holds more widely. a third source of confusion, specific to the ecb, relates to the policy rate the central bank should provide a numerical path for. in the current environment of large excess liquidity the deposit facility rate is de facto our key policy rate. but charting its future path would be complicated by the endogenous impact of changes in excess liquidity on its level. at longer tenors in particular, it would be difficult for markets to disentangle the fraction of the path that reflects a genuine change in policy rates from that reflecting changes in excess liquidity. numerical guidance on our main refinancing rate, by contrast, might be of little value to market participants at shorter horizons, unless we were to convey, in parallel, information on the expected width of the rate corridor. in fact, one might even argue that would the governing council decide to publish a path for future interest rates, it would have to anticipate decisions on the ecb ’ s long - term operational framework, such as whether we intend to retain the pre -

donald l kohn : nomination as vice chairman to the board testimony by mr donald l kohn, member of the board of governors of the us federal reserve system, before the committee on banking, housing, and urban affairs, united states senate, washington dc, 8 june 2006. * * * chairman shelby, senator sarbanes, and members of the committee, i am honored to have been nominated by president bush to be the vice chairman of the board of governors of the federal reserve system and grateful to this committee for scheduling this hearing so expeditiously. i have enjoyed a long and productive relationship with the banking committee and its staff over the years, working together to determine how the federal reserve can best contribute to the economic wellbeing of our citizens. as a governor and, if you confirm me, as vice chairman, i look forward to continuing to be a part of the shared pursuit of that goal. the board's vice chairman has a very limited role under the federal reserve act - - to preside over the board in the absence of the chairman. by tradition and practice, however, the vice chairman has played a leadership role within the system. he or she has acted as the chairman's deputy or alternate in important international groups, has headed ad hoc committees within the board, system, or federal open market committee to help develop policy alternatives for consideration by the larger group, has helped the chairman to lead the board, and has worked closely with the chairman in a variety of circumstances, including when responding to disturbances in the financial sector that had the potential of affecting the broader economy. the federal reserve faces considerable challenges today in meeting the responsibilities that you have given us : for fostering price stability and maximum employment at a time of rapid change in the u. s. and global economies ; for helping maintain a safe and sound banking system and stable and efficient payments and financial systems in the face of innovations in financial instruments and institutions ; and for protecting and educating consumers as they take advantage of the greater variety and sophistication of financial instruments available to them. i believe that my long and wide experience within the federal reserve - - at a reserve bank and at the board, on staff and as governor - along with my close working relationship with chairman bernanke will enable me to make even greater contributions to the work of the federal reserve as the board's vice chairman should you choose to confirm me to this position.