situation 15 years ago and the u.s. situation today is that japan was in deflation, and clearly, when you're in deflation, and in recession, then both sides of your mandate, so to speak, are demanding additional accomodation. in this case, we are not in deflation. we have an inflation rate that's close to our objective. why don't we do more? first i would, again, reiterate we are doing a great deal. policies extraordinarily accommodative. i won't go through list again but you know all the things we have done to try to provide support to the economy. i guess the question is does it make sense to actively seek a higher inflation rate in order to achieve a slightly increased reduction -- slightly increased pates of reduction in the unemployment rate? the view of the committee is that that would be very -- reckless. we have -- we the federal

reserve have spent 30 years building up credibility for low and stable inflation, which proved extremely valuable in that we've been able to take strong actions in the last four, five years to support the economy without leading to an unanchoring of inflation expectations or a destabilization of inflation. to risk that asset for what i think would be quite tentative and perhaps doubtful gains on the real side would be, i think, unwise thing to do. >> [ inaudible ]. >> thank you. given your warnings to lawmakers about the looming fiscal cliff, do you think the fed has to take into account when congress chooses to take action if they waited until january, say, would you feel obligated to take into the potential economic blow into

account? >> well, i think we'll have to take fiscal policy into account to some extent but i think it's very important to say that if no action were to be taken by the fiscal authorities, the size of the fiscal is such that there's no chance the federal reserve could or would have any ability whatsoever to offset that effect on the economy. so i, as i've said many times before, it's imperative for congress to give us a, a fiscal policy that achieves two principle objectives. the first is of course, to achieve fiscal sustainability over the longer term. that is critical and that's something that needs to be addressed. at the same time i think that can be done in a way that doesn't endanger the short-term recovery of the economy, and i have concern that if all the tax increases and spending cuts that

are associated with the current law and which would take place, absent congressional action were to occur on january 1st that that would be a significant risk to the recovery. i'm looking and hoping that congress will take actions that will address both sides of th that -- both requirements of a good fiscal policy. >> josh? >> mr. chairman, josh from bloomberg news. in today's statement you said after coming quarters you expect the economy to pick up gradually. yet in the forecast we got today we see the forecast for 2013 and 2014 the growth forecast is downgraded. what caused you to downgrade your forecast for 2013 and 2014 when you see a pickup after coming quarters? >> well, again, these are the views of the, participant, the 17 participants.

so the basic feature that is describes in our statement, which is that growth seems likely to pick up over time is still obviously in our projections, the 2013 numbers are stronger than the 2014 numbers and the 2012 better than 2013. the reason, first accommodative monetary policy which continues to provide support for the recovery. but in addition, some of the head winds that have been affecting our recovery, such as the housing market, financial stresses, credit tightness and so on, some of those things we hope will be lifting oeb over time and allow the economy to approach more quickly its longer run full employment level. the reason i don't know precisely why there's been a slight downgrade in years further out, but i expect that the fiscal issues may be part of

it. >> mr. chairman, you may be inflation target sound a little bit more like an inflation seal leak and you subjected breaching that sealing or target would hurt the fed's credibility. can you explain a little more why you think going 50 base point or a full percentage points above the 2% credit would hurt the fed's kret credibility and what that would do on the unemployment side if you were do to that? >> it's no at ceiling. a an objective and we tend to bring inflation close to 2%. in particular, if inflation were to jump for whatever reason and we don't have, obviously don't have perfect control of inflation, we'll try to return inflation to 2% at a pace which takes into account the situation with respect to unemployment. the risk of higher inflation, you say 2.5%.

well, 2.5% expected change might involve a distribution of outcome some of which might be much higher than 2.5%, and the concern we have is that if inflation were to run well above 2% for a protracted period, that the -- the credibility and the well anchored inflation expectations which are sump a valuable asset of the federal reserve might become eroded. in which case we would, in fact, have less rather than more flexibility to use accommodative monetary policy to achieve our employment goals. i would cite to you just as an example, if you look at vice chair yellin's paper, which she gave, or speech which she gave a couple weeks ago describing a number of ways of looking at the blat 2414 guidance, she showed so-called opt malpolicy rules

that come from trying to get the best possible outcomes from our quantitative economic models and what you see if you look at that is that the best possible outcomes assuming perfect certainty, assuming a perfect foresight, unrealistic assumptions, still involve inflation staying close to 2%. so there is no presumption even in our models that you need inflation well above target in order to make progress in unemployment. >> back here. >> trying to make a living out of parsing these statements, noting the seconds on strains in global financial markets, the committee said this time around strain in global, posing a downside risk to the economic outlook. in january the committee said the strains were easing. what are we to read into this apparent change? strange tightening now? and what is your assessment of

the situation in europe with the debt crisis or authorities there adequately addressing that crisis? thank you. >> supposed to be a factual description of what's happening in the environment. in january, the financial markets had calmed considerably, reflecting a number of steps taken in europe, including notably the two large long-term refinancing operation bice the european central banks which helped finance europe's banks for up to three years. in recent weeks we've seen more market stress arising from concerns about the fiscal positions of spain and italy, and you know, we've seen more volatility in our own markets related to that. we're simply taking note of the fact that a portion of the improvement we saw late last year and early this year in european financial markets and in our own financial markets has been reversed recently. nothing more intended than that. as you know, i had the opportunity over the weekend to speak with my european and other

not colleagues, because we had the g-20 and imf meetings here in washington, so we had plenty of opportunities to discuss the european situation. i think it's true that the europeans have made substantial progress overall. i include not only the two rtlo operations but also the greek debt deal, the work on the fiscal compact, and recently the setting up of a larger financial firewall that can be used to avoid contagions, should another country face a serious financial distress. so progress has been made. but obviously, judging by market conditions, there's still more work to be done, and we are counting on our european colleagues to continue to follow through with their commitments and to put very strong effort into addressing what remains significant problems and concerns in europe.

>> robin harding from the "final times." mr. chairman, two questions. first a follow-up on steve's question earlier. there are now any participants forecasting rates will still be close to zero at the end of 2014. give than you said the committee is entirely happy with the language in the statement what information can we then take from the forecasts when they change like that? the second point -- sorry -- if you were to decide you wanted to do more to support the economy at some point, could you run us through the stats of feasible options to do that? thank you. >> sure. well, if you compare this set of forecasts with january you see a few members have pulled in their expected -- expected date, but let me just reiterate that once again, that these are just

inputs into a decision process. they represent individual estimates, and quite admittedly, as many of the participants said around the table, you know, these are uncertainly from individual points of view, and as we discussed the range of considerations including the fact that we remain uncertainly about how the economy's going evolve i talked about, for example, the open law puzzle about whether or not unemployment will continue to fall quickly or whether it will begin to level out. given those uncertainties, given the risks like the european situation or the fiscal cliff we've just discussed here, that there was a quite reasonable case for maintaining the -- the guidance that late 2014, and as i said, there was a great deal of comfort among the participants and the committee members with maintaining this guidance.

>> [ inaudible ]. >> thank you. marketwatch.com. the speeches from fed officials, looks like too big to fail, they view this as the next step where the attention should be paid and more should be done. there's even a proposal to have legislation to force bank divestitures. could you talk about your views on these things? thank you. >> yes. i believe that too big to fail was an important cause, or at least a propagating mechanism, of the financial crisis, and i believe it's absolutely incumbent upon us to do all we can to eliminate too big to fail. what i mean by that is a situation where a failing firm is bailed out because its collapse would have such adverse consequences for the rest of the financial system. so we are working to get rid of too big to fail. i think making some progress.

first of all, we are very substantially increasing the supervisory and regulatory oversight of large financial institutions. that includes, for example, the basel 3 rules that requires higher capital for all banks, specifically for more important banks. more liquidity requirements. stress tests. a range of tougher supervisory requirements that are, many of embedded in the rule we put out on 165-166, that section of the dodd-frank act. so the first thing we're going to do is make sure that these large institutions are stronger, that it's much harder for them to fail and that they are watched much more carefully and actively by supervisors. the other big part of too big to fail, in a circumstance where the large firm does come to the brink of failure it must be allowed to fail.

it must be safe to fail. in that respect, one of the principle tools from dodd-frank, a so-called orderly liquidation authority, which is the fdic's tool and the federal reserve is working close to the fdic there. the idea is to apply the same kind of bank resolution tools that the fdic has used many years on domestic banks to large complex financial firms. obviously the complexity makes that a much more challenges task, but i think we're making progress there. we have put out rules about so-called living wills, which would require large financial firms to, who essentially plan out how they would be disassembled, and we've continued to talk with international colleagues about how we would cooperate if a multi-national firm had to be put into receivership. and indeed, part of the reason that there's been some down

grade or potential downgrade for some u.s. financial citizeinstis is the judging of the ratings agencies that these institutions has is less than in the past. and so i think ultimately what we'll need to have is a situation where large firms are both making judgments about their size and complexity based only on the economic benefits and costs and not on too big to fail considerations, and that if there is failure, that it can be done and achieved without highly adverse consequences for the financial system and the economy. that's our objective, and that's the way i think to end too big to fail. >> katherine and then go to -- [ inaudible ]. >> you've been working lard to improve communications with both markets and the general public. what's your assessment of how this is done?

>> i think that's part of the -- your job to say. i think we're making progress. i think it was an important step to make clear what our inflation objective is. i thought that was important. and we put out a statement that described the overall policy approach of the federal reserve. we've taken a number of steps to improve communication, including these press conferences, of course. but also by expanding our projections, and by continued, you know, work doing -- sorry. doing testimonies and speeches and most recently as you know i did some classes. i taught some classes at a local university. so we're doing our best, both to achieve, really twoshs obje obj. one, lep the fed a little more understandable to the average

person because many don't understand all the arcane aspects of the federal reserve and monetary policy and to be good voters and good citizens they need to understand, you know, something about what the fed does, an, also, to communicate with markets so that markets can better appreciate, you know, what our monetary policy plans are in order so that interest rates and other asset prices can appropriately reflect those plans. i think the evidence on the latter point is that there is better understanding of the fed's policies and you know, we've seen, for example, less volatility in interest rates related to greater center about what the fed is likely to do, but i want to emphasize that this is an ondoing task. it's a work in progress and we're going to continue to look for ways to make ourselves better understand -- more understandable and more transparent to the public.

>> greg from "the economist." first, assume you were not constrained by the zero nominal bound right now, what would the federal fund rates be, even if a negative number? a do you believe you are at accommodation of today, using unconditional skills and a quick, could you pus a number on -- 1% exceptionally low at the end of 2014? >> well, the exact -- the exact reading for the federal funds rate today in the absence of -- it would depend on the rule, the model you use. i don't want to cite a particular number. it probably would be negative. in that respect we are trying to compensate for that by the use of non-standard tools including, as you know, almost a $3 trillion balance sheet. we see monetary policy as being

approximately in the right place at this point. based on the analysis we've been doing of the economy and the outlook. that doesn't mean we might not take further action. we are certainly prepared to take further action, but for the time being, it appears that we are more or less in the right place. >> exceptionally low. you know, one of the reasons that the language in the statement is sometimes a little vaguer than you would like is because we're trying to get a consensus among 17 or at least 10 people, and different members or participants in the fomc might have somewhat different views of what exceptionally low means. personally i think it means something close to where we are now. >> donna, and then steve -- [ inaudible ]. >> chairman, don tha with american banker. to follow-up on the too big to fail question, there's been

acute discussions in calling for breaking ufr the banks even including fed official. you just talk and the need to b. of course, that's the intent of it. my question is two-fold. do you agree? and is there an argument to be made, and is that something the fed should consider? and sort of this earlier point you made is what in your view is a test that will allow us to know that we can achieve ending too big to fail through dodd-frank? >> well, there may be situation where the bank is too large. if it were posing a threat, then i would consider breaking it up would be something that regulators should look at. my own view, though, is that a

more market responsive way to address this problem is to eliminate the incentive to be too big to fail. that is through tougher supervisory oversight, through higher capital requirements. through greater liquidity requirements. through restrictions on connectiveness, et cetera, et cetera. take away the benefits or enforce firms to internalize the costs of being large and complex, and on the other side, as i was saying earlier, if we can safely unwind a failing firm, then we no longer have too big to fail, obviously. that's a very important interjective. the test would be the financial markets that lend to large firms base their bond spreads and what

they're willing to pay for the stock of the firm solely on the risk taking and on the business model of those firms, and not on the fact that there's some anticipation of a government bailout. so market indicators will help us see our progress towards ending too big to fail. >> there's been some concern in markets about what will happen to bond yields at the expiration of operation twist on june 30th. and some speculation on what the fed might need to do to keep that pressure on you. is that a concern that you share and, and do you and your colleagues feel the need not to disappoint these kinds of markets? expectations. >> well, to your last point.

the purpose of monetary policy is to achieve our objectives of mux mum employment and price stability. it's not to disappoint or not disappoint investors. we will take action and not try to achieve market outcomes. there's some disagreement about how exactly balanced sheet actions by the federal reserve affect treasury yields and other crisis. the view that we have generally taken and which i think the evidence is pretty good is that if the quantity of securities held at the feld at a given time, rather than the flow of new purchases, which is the primary deterrent of interest rates. and if that is correct, then at such time that our purchases come to an end, this should be relatively minimal effects on

interest rates at that time. and that, has been our experience generally in previous episodes where we have launched a program and then allowed it to come to a natural end. we'll continue to monitor the situation. and if we believe that financial conditions for whatever reason are inconsistent with our macro economic objectives, then we will act to fix that. again, our expectation is that at whatever point that the purchases end, that financial markets being quite forward looking will have anticipated that, and that the effects ought to be moderate. >> thank you, chairman. my question is for the kmint

about the japan and u.s. you're confident they would have long term resignation like the one in japan. and if it's the case, what's the response of japan and the u.s. or the other factor make a difference? >> are the measures -- >> yes, is this the only way to make a difference? the u.s. and japan? or any other factors make a difference in u.s. and japan situation? >> well, i think the -- i would draw two distinctions between the u.s. and japan or the japanese experience. the first is that as i mentioned earlier, and i think this is very important, is that we act aggressively and preemptively to avoid deflation. now, of course, japan had a much bigger bubble and much bigger

shock when the bubble collapsed. so these differences may be certainly understandable. but again, we did avoid the deflation. the other thing, which i think we have done reasonably well in the united states is that we moved fairly quickly to make sure that our banks were recapitalized and we were recognizing their bad assets, and i think tests are considerably strong and much more resilient than a couple of years ago. so those two things are positive and would tend to suggest that we will avoid some of the problems that japan has faced. that being said, it's always better to be humble and just to

avoid being too confident. and we need to continue to maintain a strong monetary policy support to make sure that the economy continues on a recovery path and returns to a more normal situation. >> scott with cnn money, sir. i want to ask the labor force participation rate. it's at the lowest level since the early '80s. can you talk about why people are dropping out of the job market? whether it's a permanent structural problem, and what convinces you that things may change? i will pop a second question to follow up on steve and the bonds. your colleague sheila bayer wrote this week about her concern over being in a bond bubble. she said you should declare victory.

can you respond to that, too? >> on declaring victory, i think it's a little premature to declare victory. i think that keeping interest rates low is still appropriate for our economy. as for the bond bubble. interest rates are low for a lot of reasons. they include monetary policy. but they also include the weak economy, low expectations and safe haven demands for u.s. treasuries. interest rates will arise at some point. that would be an indication that the economy is recovering and strengthening. and i think it's important for holders of long-term securities to manage their risks and pay attention to that. but all that being said, i think again, there are both good reasons to continue and good reasons for interest rates to be

low. the first part of your question was -- participation. we had have good discussion of that at the meeting, because it is an important issue. there is, in fact, a downward trend. it comes from, first, the fact that we're no longer getting increas increased participation from women. and secondly, because as a society ages and also for other reasons, male participation has been declining over time. so there's a downward trend that we have to take into account. the participants at the meeting, at least some of them suggested, though, that a good bit of the