them, returning the discount window to more normal operations. as part of this first step, the fomc would also eliminate its commitment to maintaining “ exceptionally low levels of the federal funds rate for an extended period. ” second, with these steps taken, with the improvements in market conditions and liquidity, and with an improving outlook, the fomc would be prepared to raise the funds rate target to 1 percent by the end of summer. this would continue the current highly accommodative policy, but would move nominal rates away from zero and real rates to a less negative level. we would then pause, maintaining the funds rate at 1 percent while we assess the economic outlook and emerging financial conditions. this would provide time to judge whether and to what degree further policy adjustments are warranted to assure long - run financial equilibrium and stability. based on the current outlook consensus, it seems reasonable that the economy would be well - positioned to accept this modest increase in the funds rate. as a reminder, the funds rate target remained between 1 and 2 percent even after the intensification of the crisis in the fall of 2008. it was reduced to its current target range of zero to ¼ percent in mid - december 2008. relative to the depths of the crisis, conditions today are much improved from where we were 18 months ago. financial stress is clearly reduced and a sustainable economic recovery appears under way. it is also important to emphasize that the 1 percent fed funds rate target, coupled with the federal reserve ’ s large balance sheet, provides an extraordinarily accommodative monetary policy environment and one that would ensure the economy ’ s continued progress in the recovery. setting out such a plan would be a more orderly move toward unwinding the earlier extraordinary actions and would serve to reduce the likelihood of a buildup of new financial imbalances. let me turn now to the subsequent steps that might be taken to more fully restore policy to a long - run equilibrium policy level. given the relatively modest expected trajectory of growth and inflation, these added moves will involve some quarters to complete. but the direction should be firmly established now with the timing dependent on the performance of a combination of financial, inflation and growth variables. experience tells me that a clear commitment now to such action would mitigate the likely need to later tighten beyond our estimate of neutral that so often comes with delay. more specifically, these next steps involve raising the funds rate from 1 to above 3 percent reasonably quickly as we gain confidence

all market participants that they are fully at risk when dealing with these entities. most important, this option offers the only direct means to address the incentive issues surrounding too big to fail and, as a result, provides the best opportunity to curtail the repeated game of expanded safety nets and escalating risk. ending too big to fail in this manner would also bring market discipline back into play as a key force supporting supervision and capital standards. the dodd - frank act provides a framework for resolving systemically important organizations. while it adds to what we already have for closing commercial banks, there are important weaknesses with this framework. in particular, the final decision on solvency is not market driven but rests with different regulatory agencies and finally with the secretary of the bis central bankers ’ speeches treasury, which will bring political considerations into what should be a financial determination. so long as we have systemic organizations operating under the government ’ s protection, we will face the matter of whether we have the will to allow the market and bankruptcy to resolve them. in a major crisis, there will always be an overwhelming impulse to avoid putting such institutions through receivership. always, it is feared that public confidence will be shattered, creditors or depositors at other institutions will panic, and that there are too many connections that will bring down other institutions. in addition, important services will be lost and the international activities will be too complex to resolve. many of these fears are likely overstated. i maintain the view that the long - term consequences are much more severe if we fail to take action to end this cycle of repeated crises. in an environment where market participants are truly at risk, they will be much more likely to take steps to protect themselves, thus reducing the side effects of resolutions, and a failed institution ’ s essential activities can be continued through bridge banks and other means. a recent moody ’ s comment further voices a belief that the resolution regime, as outlined in the fdic ’ s interim rules, “ will not work as planned, posing a contagion risk and most likely forcing the government to provide support in order to avoid a systemic crisis. ” based on this belief, moody ’ s intends to continue assuming government support for the eight largest banking organizations, thus helping to carry on the funding advantage these entities have over other market players. separate risk taking from the safety net. if too big to fail organizations cannot be effectively supervised, capitalized, or resolved – which is exactly where i contend things stand right now – what option