, which is likely to be a long and slow process. thus, while i expect a moderate recovery to continue and to strengthen over time, i expect to see only modest declines in the unemployment rate, with probably little change over the rest of this year, and then gradually falling to a range of 8 to 8½ percent by the end of 2012. inflation let me now turn to my outlook for inflation. just as growth has been weaker this year than many forecasters had anticipated, inflation has been higher than expected. monthly changes in inflation have moderated slightly from those seen earlier in the year as the prices of oil and other commodities have come down. however, measured on a year - over - year basis, both total inflation and core inflation continue to advance. i do anticipate that with many commodity prices now leveling off or falling, and inflation expectations relatively stable, inflation will moderate in the near term. our focus should not be so much on the near term as on the medium term. looking further ahead, we must continue to monitor this situation very carefully, particularly in this environment of very accommodative monetary policy. inflation most often develops gradually, and if monetary policy waits too long to respond, it can be very costly to correct. indeed, it is good to remember that the current inflationary environment is quite different from the one we faced a year ago when we embarked on the so - called qe2 policy to purchase $ 600 billion of long - term u. s. treasuries. at the time, inflation was falling and there were concerns about deflation – year over year, pce inflation was running about 1. 2 percent and core pce inflation ( excluding food and energy ) was under 1 percent. today, pce inflation is 2. 9 percent and core pce is running nearly 1. 7 percent. i would also note that unemployment was 9. 8 percent last fall compared to 9. 1 percent today. thus, with inflation higher and unemployment lower, it is not so surprising that some might question the need for the additional accommodation the fomc undertook in august and september – a point i will return to shortly. in this environment, i think it is very important that we refrain from actions that risk fueling a steady rise in inflation or inflation expectations over the medium term. we must not become too sanguine that high unemployment will lead to low inflation. the lesson of the 1970s is clear – high unemployment or low resource utilization is

in financial markets, where investment decisions and the valuation of securities depend on assessments of future economic outcomes. but this is also true for individuals buying homes and businesses making capital investments. when businesses and households have a better understanding of how monetary policy is likely to evolve, they can make more informed spending and financial decisions. if policymakers can reduce uncertainty about the course of monetary policy, the economy is likely to perform more efficiently. thus, monetary policy that is more systematic and predictable can reduce expectational errors and contribute to a more stable and efficiently functioning economy. this recognition of the important role played by expectations has led many academics and policymakers to stress the importance of credibility and commitment to well - articulated monetary policy objectives. it has also led to extensive research on monetary policy rules that can enhance the predictability of policy. in fact, virtually all of the mainstream macroeconomic models are built upon the presumption that monetary policy is conducted in a rule - like manner that is well understood by all agents in the economy. in their nobel prize - winning work, finn kydland and ed prescott demonstrated that a credible commitment by policymakers to behave in a systematic, rule - like manner over time leads to better outcomes than discretion. 2 in monetary policy, less discretionary behavior and a commitment to a more systematic approach have been shown to lead to more economic stability – lower and less volatile inflation and less volatile output. yet, the science of monetary policy has not progressed to the point where we can specify the optimal rule for setting monetary policy and turn decisions over to a computer. judgment is see the federal reserve bank of philadelphia, “ timeline to transparency. ” finn e. kydland and edward c. prescott, “ rules rather than discretion : the inconsistency of optimal plans, ” journal of political economy, 85 ( january 1977 ), pp 473 – 91. bis central bankers ’ speeches still required. moreover, optimal rules, that is, those that maximize economic welfare, are highly dependent on the particular model from which they are derived. for example, the optimal rule for one model can produce very bad outcomes in another model. in addition, optimal rules can often be quite complex, thus making them difficult to implement and to communicate to the public. in other words, they may not be very transparent. however, these limitations to implementing optimal policy rules should not prevent us from adopting a systematic approach to the conduct of policy. there has been a great deal of progress in identifying simple, robust rules