emphasized, the pace of the current recovery has turned out to be persistently slower than most observers expected, and forecasters expect it to remain quite moderate by historical standards. the headwinds that explain this disappointing performance represent a substantial departure from normal cyclical dynamics. as a result, the economy ’ s equilibrium real federal funds rate – that is, the rate that would be consistent with full employment over the medium run – is probably well below its historical average, which the intercept of simple policy rules is supposed to approximate. by failing to fully adjust for this decline, the prescriptions of simple policy rules – which provide a useful benchmark under normal circumstances – could be significantly too restrictive now and could remain so for some time to come. in this regard, i think it is informative that the blue chip consensus forecast released in march showed the real three - month treasury bill rate settling down at only 1 - 1 / 4 percent late in the decade, down 120 basis points from the long - run projections made prior to the recession. 21 looking ahead recent labor market reports and financial developments serve as a reminder that the economy remains vulnerable to setbacks. indeed, the simulations i described above did not take into account this new information. in our policy deliberations at the upcoming fomc meeting we will assess the effects of these developments on the economic forecast. if the committee were to judge that the recovery is unlikely to proceed at a satisfactory pace ( for example, that the forecast entails little or no improvement in the labor market over the next few years ), or that the downside risks to the outlook had become sufficiently great, or that inflation appeared to be in danger of declining notably below its 2 percent objective, i am convinced that scope remains for the fomc to provide further policy accommodation either optimal control takes account of the stimulus provided by the balance sheet operations because it conditions on a baseline forecast of real activity and inflation that ( at least implicitly ) incorporates the effects of the federal reserve ’ s balance sheet operations on projected financial conditions, real activity, and inflation. for a further discussion of this issue, see william c. dudley ( 2012 ), “ conducting monetary policy : rules, learning and risk management ”, speech delivered at the c. peter mccolough series on international economics, council on foreign relations, new york, may 24. bis central bankers ’ speeches through its forward guidance or through additional balance - sheet actions. in taking these decisions, however, we would need to balance

important because of the key role that market makers play in facilitating liquid markets in securities, derivatives, and other assets. at the ends of the spectrum, the distinction between pure proprietary trading and market making is straightforward. at one end, for instance, trading activities that are organized within a discrete business unit, and that are conducted solely for the purpose of executing trading strategies that are expected to produce short - term profits without any connection to customer facilitation or intermediation, are not difficult to identify. these “ internal hedge fund ” operations existed at many bank affiliates for quite some time before the volcker rule was enacted. firms that either are or were engaged in these non - client - oriented, purely proprietary trading businesses can readily identify and wind down these activities. indeed, some have already done so for a number of reasons, including anticipatory compliance with the volcker rule. at the other end of the spectrum, a textbook example would be a pure agency - based market maker that acts as an intermediary, instantaneously matching a large pool of buyers and sellers of an underlying asset without ever having to take a position in the asset itself. profits are earned either solely by charging buyers a higher price than is paid to sellers of the asset, or in some cases by charging a commission. buyers and sellers willingly pay this “ spread ” fee or commission because the market maker is able to more quickly and efficiently match buyers with sellers than if they were left to find each other on their own. i refer to this as a textbook example because instances of such riskless market making in our trading markets are rare. in actual markets, buyers and sellers arrive at different times, in staggered numbers and often have demands for similar but not identical assets. market makers hold inventory and manage exposures to the assets in which they make markets to ensure that they can continuously serve the needs of their customers. accordingly, in the broad middle that exists between these two clear examples, the distinction between prohibited proprietary trading and permissible market making can be difficult to draw, because these activities share several important characteristics. in both activities, the banking entity generally acts as principal in trading the underlying position, holds that position for only a relatively short period of time, and enjoys profits ( and suffers losses ) from any price variation in the position over the period the position is held. thus, the purchase or sale of a specific block of securities is not obviously permissible or forbidden bis central bankers ’ speeches based solely on the features