expectations, we will change our forecasts for both the economic variables and the policy rate. as we do, households and businesses will be able to learn more about the monetary policy reaction function. and it is this knowledge that will help them make better informed decisions. another criticism we heard on the day the projections were published was that they seemed to be inconsistent with the fomc policy statement released a couple of hours earlier. the taylor ( 1979 ), svensson ( 1997 ) and woodford ( 2003 ). note a weight of 1 on the unemployment rate is equivalent to a weight of about ¼ on the output gap. of course, policymakers could debate the relative weights to put on inflation and the real - side goal variable in their loss function. bis central bankers ’ speeches statement indicated that the committee thought economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014, but six of the 17 policy projections showed that the funds rate would be 1 - 1 / 2 percent or higher at the end of that year. well, by the next day, the markets had figured it out ; the projections are made by all fomc participants, while the statement reflects the policy views agreed upon at the meeting by the voting members of the committee. we all come into the meeting with our projections, but we then do have a real meeting : all of the participants exchange ideas and argue points of views, and then the voters on the committee come to a consensus and make a collective policy decision. the information regarding the federal funds rate in the sep does not substitute for this formal decision of the voting members of the fomc. that said, the diversity of views is a fact of life. policymakers may well have differing judgments on the appropriate stance of monetary policy in the particular economic circumstances of the moment. these communications initiatives cannot eliminate these differences of opinion. but they further discipline the parameters of our discussions, clarify the judgments that underlie our policy decisions and enhance transparency and the public ’ s ability to evaluate current monetary policy with alternative approaches. forward guidance and policy commitment in an explicit state - contingent policy the macroeconomic environment the new policy tools can also complement the kinds of accommodative policies i have been advocating for some time. the u. s. is now more than two and a half years into its modest and uneven recovery from the great recession. real gross domestic product growth has averaged just 2 - 1 / 2 percent. the unemployment rate is 8 -

because short - term nominal interest rates cannot fall below zero, real rates cannot become negative enough to equilibrate savings and investment. as i weigh the evidence, i find the case for the liquidity trap scenario more compelling than one for the structural impediments scenario. my assessment has been influenced by the book titled this time is different : eight centuries of financial folly3 by carmen reinhart and kenneth rogoff. reinhart and rogoff document the substantially detrimental effects that financial crises typically impose on the subsequent economic recovery. as we all know, the recent recession was accompanied by a large financial crisis. when i look at the u. s. economy today, i see it tracking reinhart and rogoff ’ s observation that such recoveries are usually painfully slow – and are so for reasons that have little to do with structural impediments in the labor market and the like. liquidity traps are rare and difficult events to manage. they present a clear and present danger that we risk repeating the experience of the u. s. in the 1930s or that of japan over see christiano, eichenmbaum and evans ( 2005 ), smets and wouters ( 2007 ) and chung et al. ( 2010 ). federal open market committee ( 2011 ). reinhart and rogoff ( 2009 ). bis central bankers ’ speeches the past 20 years. however, liquidity traps have been studied over the years in rigorous analytical models by a number of prominent economists, including paul krugman, gauti eggertsson, michael woodford and ivan werning. 4 variants of these models have successfully explained business cycle developments in the united states. the lesson drawn from this literature is that the performance of economies stuck in a liquidity trap can be vastly improved by lowering real interest rates and lifting economic activity using an appropriately prolonged and forward - looking period of accommodative monetary policy. of course, such monetary accommodation is the antithesis of the policy prescription for the structural impediments scenario. a risk - management approach to policy changes of course, i realize that i could be wrong in my assessment. so let us consider how we should conduct policy when we don ’ t know for sure which scenario is really the one we face today. how can we avoid risking a repeat of either the stagflation of the 1970s or the slow growth of the 1930s? the problem, of course, is that policies that are optimal for the