inflation performance. recognizing the interactions between the two parts of our mandate, the fomc has found it useful to frame our dual mandate in terms of the longer - run sustainable rate of unemployment and the mandate - consistent inflation rate. the longer - run sustainable rate of unemployment is the rate of unemployment that the economy can maintain without generating upward or downward pressure on inflation. because a healthy economy must allow for the destruction and creation of jobs, as well as for movements of workers between jobs and in and out of the labor force, the longer - run sustainable rate of unemployment is greater than zero. similarly, the mandate - consistent inflation rate – the inflation rate that best promotes our dual objectives in the long run – is not necessarily zero ; indeed, committee participants have generally judged that a modestly positive inflation rate over the longer run is most consistent with the dual mandate. ( the view that policy should aim for an inflation rate modestly above zero is shared by virtually all central banks around the world. ) several rationales can be provided for this judgment, including upward biases in the measurement of inflation. a rationale that is particularly relevant today is that maintaining an “ inflation buffer ” ( that is, an average inflation rate greater than zero ) allows for a somewhat higher average level of nominal interest rates, which in turn gives the federal reserve greater latitude to reduce the target federal funds rate when needed to stimulate increased economic activity and employment. a modestly positive inflation rate also reduces the probability that the economy could fall into deflation, which under some circumstances can lead to significant economic problems. although attaining the long - run sustainable rate of unemployment and achieving the mandate - consistent rate of inflation are both key objectives of monetary policy, the two objectives are somewhat different in nature. most importantly, whereas monetary policymakers clearly have the ability to determine the inflation rate in the long run, they have little or no control over the longer - run sustainable unemployment rate, which is primarily determined by demographic and structural factors, not by monetary policy. thus, while central bankers can choose the value of inflation they wish to target, the sustainable unemployment rate can only be estimated, and is subject to substantial uncertainty. moreover, the sustainable rate of unemployment typically evolves over time as its fundamental determinants change, whereas keeping inflation expectations firmly anchored generally implies that the inflation objective should remain constant unless there are compelling technical reasons for changing it, such as changes in the methods used to measure inflation. in recent years, the federal reserve has taken important

cannot be reduced below zero, the federal reserve and central banks in other countries have employed nonstandard policies and approaches that do not rely on reductions in the short - term interest rate. we are still learning about the efficacy and appropriate management of these alternative tools. in the remainder of my remarks i will discuss these issues in the context of current economic and policy developments. i will comment on the near - term outlook for economic activity and inflation. i will then compare that outlook to some quantitative measures of the federal reserve ’ s objectives, namely, the longer - run outcomes that fomc participants judge to be most consistent with its dual mandate of maximum employment and price stability. finally, i will observe that, in a world in which the policy interest rate is close to zero, the committee must consider the costs and risks associated with the use of nonconventional tools when it assesses whether additional policy accommodation is likely to be beneficial on net. the outlook for growth and employment the arbiters across the river in cambridge, the business cycle dating committee of the national bureau of economic research, recently made their determination : an economic recovery began in the united states in july 2009, following a series of forceful actions by central banks and other policymakers around the world that helped stabilize the financial system and restore more - normal functioning to key financial markets. the initial upturn in activity, which was reasonably strong, reflected a number of factors, including efforts by firms to better align their inventories with their sales, expansionary monetary and fiscal policies, improved financial conditions, and a pickup in export growth. however, factors such as fiscal policy and the inventory cycle can provide only a temporary impetus to recovery. sustained expansion must ultimately be driven by growth in private final demand, including consumer spending, business and residential investment, and net exports. that handoff is currently under way. however, with growth in private final demand having so far proved relatively modest, overall economic growth has been proceeding at a pace that is less vigorous than we would like. in particular, consumer spending has been inhibited by the painfully slow recovery in the labor market, which has restrained growth in wage income and has raised uncertainty about job security and employment prospects. since june, private - sector employers have added, on net, an average of only about 85, 000 workers per month – not enough to bring the unemployment rate down significantly. consumer spending in the quarters ahead will depend importantly on the pace of job creation but also on households ’ ability to repair