the economists and researchers at the board, every reserve bank has economic research groups. we also have financial market experts at the new york fed and at the board. and we gather thousands of tidbits of anecdotal information from a wide range of sources. given my background in banking and the important role lending has played in both the crisis and the recovery, i try to provide the committee with insight into current lending conditions, including loan quality and credit availability. i begin my preparations about two weeks before the meeting by contacting a number of bankers from banks of different sizes, geographic market coverage, and business models. then i meet with a staff group drawn from all the disciplines at the board who bring data from surveys, supervisory observations, and their own research to help me round out the anecdotal information. finally, i spend a great deal of time studying the materials furnished to all participants. about a week ahead of the meeting, the process really ramps up as the staff distributes its analysis of the economy and participants begin to formulate their own forecasts. on the tuesday before the meeting, the staff distributes to the board members and reserve bank presidents for comment a document with a range of options ( usually three ) for the statement that will be released after the meeting. at this point in the process, we aren ’ t debating which option is best or even necessarily what the best words are, but rather, we are trying to ensure the options span the range of plausible alternatives. on wednesday, the staff circulates a discussion of economic developments since the last meeting and a forecast of economic performance, including hundreds of charts, tables, and graphs. 2 in addition to the baseline forecast, which is the staff ’ s estimate of the most likely path for the economy, several alternative simulations are included to provide a sense of the impact of other plausible developments, such as faster or slower recovery or a change in inflation expectations, that were not included in the baseline forecast. i find it impossible to form a preference for a policy to improve the path of economic performance without forming some opinion about what the performance would be absent any policy action. so i suppose you could say that i formulate an implicit economic forecast for every meeting. but four times a year, i submit an explicit forecast to be used along with the forecasts of other participants in the summary of economic projections ( sep ) that is later published with the minutes for that meeting. second question : given the economic outlook, what is

the appropriate policy response? armed with this study of the economy, projections, and often a few specific areas of concern, it is time to think about appropriate policy. on thursday the staff provides a policy - focused book designed to help with this question. it contains a number of estimates of the “ equilibrium real federal funds rate ” – the interest rate that if maintained would return the economy over time to its so - called potential, the highest level of output that does not lead to undue inflationary pressures. the book also includes calculations of policy solutions using policy rules as well as model - based estimates of optimal policy. and it contains an analysis of each of the policy alternatives that were circulated in draft form on tuesday. often, the staff also provides the fomc with memos on special topics. as you can imagine, in recent years the memos have covered topics such as use of large - scale asset purchases, ways the federal reserve might exit from non - standard programs when the time comes, or financial stability indicators. as we contemplate the possible need for additional monetary accommodation and the tools we have remaining, staff memos are quite helpful in assessing the potential costs and benefits of various approaches. with our target for the federal funds rate close to zero, the policy decisions are all the more complicated. third question : how should we communicate our actions? communication is often described as one of the tools of monetary policy. i think it is one of the most powerful aspects of our overall policy. let ’ s examine the communication vehicles we use and how they have changed over the years. speeches one of the obvious ways fomc participants communicate with the public is through speeches. with the exception of the chairman, individual participants speak only for themselves and not for the committee. still, the information in participants ’ speeches and testimony is useful because it offers the public insights into the current discussion under way within the committee and where individuals tend to fall in the debate. in recent months, as interest in our policies has risen in light of the continued slow recovery, some fed watchers and reporters have worked especially hard to piece together individual opinions to try to characterize fomc meeting discussions and the likely outcome of our future deliberations. while this is a legitimate and resourceful way to understand the current state of play in monetary policy, i would caution against reading too much into any individual speech, news transcripts of fomc meetings and copies of the materials provided to participants are released with a five