are at the low end of the range they have been running since last november. putting these factors together, i would argue that inflation is likely to remain moderate over the foreseeable future. the fomc forecasts for core inflation were concentrated near 1. 8 percent this year, and its forecasts for total inflation were in the range of 1. 5 percent to 2. 0 percent for 2012, 2013 and 2014. my own assessment is that inflation will be at the lower end of these ranges. fed performance these disappointing forecasts pose a challenge for monetary policy. the fed is charged by congress in the federal reserve act to encourage conditions that foster both maximum employment and price stability. this is what you hear us refer to as the fed ’ s “ dual mandate ”. given the high unemployment rate and low job growth, i think it is clear that the fed has fallen short in achieving its goal of maximum employment. i will return to this point shortly. as for the price stability component of our dual mandate, the majority of fomc participants – including me – judge our objective for overall inflation to average 2 percent over the medium term. with my own view that inflation is likely to run below this rate over the next few years, i believe we run the risk of missing on our inflation objective as well. two different perspectives on the economy central bankers must formulate monetary policy with the understanding that our knowledge is imperfect. we may have incomplete and sometimes competing views of the forces that generate current economic conditions. this is especially true in the difficult circumstances we face today. in my view, we should try to formulate a monetary policy strategy that carefully balances the risks associated with the reasonable alternative economic scenarios that we face and is as robust as possible to miscalculations as to which of these scenarios is predominantly true. let me now discuss two quite different perspectives that could account for the disappointing slow growth and continued high unemployment that we confront today. these two conditions are important to consider in that they have markedly different monetary policy prescriptions. the first storyline i will refer to as the “ structural impediments scenario ”. in this scenario, the recent period, which has been referred to as the great recession, was accompanied by an acute period of structural change, skills mismatch, job - killing uncertainties and excessive bis central bankers ’ speeches regulatory burdens. accordingly, these structural impediments have caused the natural rate of unemployment to increase. the structural impediments scenario

charles l evans : a risk management approach to monetary policy speech by charles l evans, president of the federal reserve bank of chicago, at the ball state university center for business and economic research outlook luncheon, muncie, in, 5 december 2011. * * * introduction it is my pleasure to be here in muncie today to speak to you about my views on the progress of the recovery and on the course of monetary policy. i would like to thank steve smith, president of the muncie forecasting roundtable, for that kind introduction. for those of you who follow monetary policy deliberations, you will certainly be aware that i was the lone dissenter at the last policy meeting held in early november. so it should come as no surprise when i say that the views that i am presenting today are my own and not necessarily those of the federal open market committee ( fomc ) or my other colleagues in the federal reserve system. real output gap four years ago the u. s. economy entered what developed into the deepest recession since the great depression. two and a half years ago the recovery began. yet, despite both accommodative monetary policy and fiscal stimulus, the pace of improvement has been agonizingly slow. real gross domestic product ( gdp ) is only just back to where it stood at its pre - recession peak in 2007, employment growth is barely enough to keep pace with natural growth in the labor force and the unemployment rate remains extraordinarily high. earlier this year, most forecasters thought that the recovery was gaining traction and that economic activity would increase at a solid – though not spectacular – pace through 2012. the labor market was beginning to show some long - awaited improvement, and the financial repair process seemed to be making progress. analysts thought that higher prices for energy and other commodities would weigh on output growth, as would supply - chain disruptions from the disaster in japan. but these factors were expected to be transitory, and most forecasters thought growth would improve significantly once these influences had passed. unfortunately, the news over the past several months has proved this forecast to be too optimistic. to use an automotive analogy, employment and growth are stuck in neutral. job growth has been disappointing, and the unemployment rate just last month dipped below 9 percent. revised data indicate that annualized real gdp growth in the first half of 2011 was only 1 percent and improved only modestly to a 2 percent pace in the third quarter. consumer spending has