fiscal restraint at the federal, state and local levels. business and household spending are increasing at rates consistent with moderate economic growth, though household spending appears to be rising at a somewhat slower pace than earlier this year. employment gains have been smaller in recent months and the unemployment rate at 8.2% remains elevated. in light of these developments committee participants have generally marked down their projections for economic growth but most still see the economy as expanding at a moderate pace over coming quarters and picking up gradually. based on their projections for economic growth fomc participants for see slower progress in reducing unemployment than in april. projections for the unemployment rate in the fourth quarter of this year have a central tendency of 8.0 to 8.2% declining to 7.7% in the fourth quarter of 2014. levels that would remain above participants estimates of the

longer run normal rates of unemployment. in addition to projecting only slow progress in bringing down unemployment most participants see the risk to the outlook weighted mainly towards slower growth and higher unemployment. in particular, participants noted that strains in global financial markets, associated principally with the situation in europe, continue to pose significant risk to the recovery and further improvement in labor market conditions. meanwhile, inflation has declined recently, primarily reflecting lower prices of crude oil and gasoline. longer term inflation expectations have remained stable and the committee anticipates inflation over the medium run will run at or below the 2% rate that judges most consistent with its statutory mandate with price stability. more specifically participants projections of inflation have a central tendency of 1.2 to 1.7% for 2012 and 1.5 to 2.0% for 2014.

the economic projections submitted by fomc participants are conditioned under individual assessments of the appropriate path of monetary policy. as you can see from the chart, committee participants have a range of views about when the initial increase in the federal funds rate is likely to be warranted. after a thorough discussion of those views, and of the ongoing uncertainty and risks surrounding the outlook, the fomc as i mentioned, maintained its collective judgment that economic conditions are likely to warrant exceptionally low levels to the federal funds rate at least through late 2014, and agreed to provide further support to the committee by continuing the maturity extension program. the committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability. thank you. i'll be glad to take your questions. >> steve liesman, cnbc.

mr. chairman, looking back on the last four years of fed policy, i think it's probably fair to say it's been bold and yet at the same time halting. you did qe1 and then stopped and did qe2, operation twist and told us it was going to end in june and now extended it. how would you respond several years from now a young graduate student came and said the problem with fed policy during this period was too incremental and the economy under performed was because of that incrementalism and what do you think the dangers are right now that today's action is also too incremental? >> well, of course, you know, we cut the federal funds rate in a continuous fashion until december of 2008 and since then we've been operating with nonstandard monetary tools including asset purchases and extension of maturities. by their nature, these tend to be lumpy. we haven't done them in a continuous way.

but our view of the affects of these programs on the economy is that the total stock of outstanding securities in our portfolio is what determines the level of accommodation that the economy is receiving. in that respect it wouldn't be really a start and stop, rather whenever we have stopped purchasing, the level of accommodation that was already in the system remains there until conditions warrant further action. now, underlying all this, of course, is the fact that the outlook has changed. like many other forecasters, the federal reserve was too optimistic early in the recovery about the pace of recovery and we've had to add additional accommodation going forward as we've seen, in fact, that the head winds have kept the recovery from being as strong as we would like. but again, by the nature of the -- of these unconventional tools, they are -- tend to be more discreet in their size but

they continue to have acom daytive effects even after the pattern of purchases has ended. >> worried about incremental --? >> we've taken a step today which is a substantive step which will provide additional accommodation for the economy and moreover, we have stated we're prepared to take further steps if necessary to promote sustainable growth and recovery in the labor market. so we are prepared to do what's necessary. we are prepared to provide support for the economy. >> mark with reuters. mr. chairman, many analysts have characterized today's step as somewhat modest. your own outlook has a much lower gdp projection. the unemployment rate in your outlook is -- shows possibly no improvement at all in the unemployment rate through the end of this year. the program itself is smaller

and of shorter duration than the original operation twist. given this weaker outlook why such a modest program and when you say you're prepared to take further action which is a stronger characterization than in your last meeting does that mean you're prepared to do a full-on new asset purchase program? >> well there's been a great deal of economic news since our last meeting. the incoming data were somewhat disappointing, but not entirely clear how to read them. we had issues with weather and seasonal adjustment and other factors. meanwhile, europe has -- had additional problems. we've seen some of those effects in the financial markets. i think there's some case to be made for making some additional judgments about where the economy is going. that being said, the step we took, the extension of the maturity extension program i think is a substantive step and will provide some additional support and yes, additional asset purchases would be among the things that we would

certainly consider if we need to take additional measures to strengthen the economy. >> [ inaudible ]. >> john from "the wall street journal". mr. chairman, i would like to ask you to respond to a different set of criticisms. this criticism which you hear from capitol hill and wall street and different places is that the fed has already pushed interest rates to an extraordinarily low level, a historically low level and that there isn't anything more that the fed can do to help the recovery. that the criticism is that the fed at this point should stand down and let congress or the white house attend to the economy's ailments or let market forces attend to the economy's ailments. what do you think of those arguments and how would you respond to them? >> well, as i've said many times, monetary policy is not a man see ya. monetary policy is not going to solve our economic problems. we welcome health and support

from any other part of the government from other economic policymakers. so, collaboration is -- would be great. i wouldn't accept the proposition, though, that the fed has no more ammunition. i do think that our tools, while they are nonstandard, can create more acom daytive financial conditions, can still provide support for the economy, can still help us return to a more normal economic situation. that being said, again, any other support that is forthcoming, any other economic policies that are undertaken that are helpful in terms of making our economy stronger, are welcome, but i do think that monetary policy still does have some capacity to strengthen the economy by easing financial conditions.

>> thank you. mitt romney recently said that qe2 had a relatively little impact on the economy. he said that was in part because of the president's policies. and he said that qe3 was unwarranted and could have negative effects. do you agree that qe2 had little effect on the economy, do you think the president's policies has had an effect on the effectiveness of monetary policy and do you think it's appropriate for a presidential candidate to comment on the future monetary policy. >> i will say first we think both of the asset purchase programs, qe1 and qe2 did have significant effects on asset prices and financial conditions and although there were certain problems in transmission, for example, the housing market has not been as responsive as it's been in some sometimes in the past we think they were both effective in providing support for the economy and in particular, so-called qe2, ended

what looked to be an insip yet deflation problem when we first introduced it. so i do think those have been effective. as i said, we think these kinds of programs can still provide additional support. with respect to the rest of your questions, i just want to reiterate that federal reserve is nonpartisan, we are very serious about taking our decisions based on purely economic rounds, without political considerations, and we'll continue to do that. >> thanks. jim with the "l.a. times." long-term interest rates, mortgage rates are already at historic lows. how much more help can an extension of operation twist do and to lower interest rates? >> well, the interest rates are quite low and they're being pushed down more by safehaven

flows and other tack factors. i think we can lower interest rates more, but beyond that, operation twist and asset purchases work also through other channels, in particular by acquiring securities in the market and bringing them on to the fed's balance sheet we induce investors to move into substantive securities. for example, an investor who sells a treasury security to the fed may end up buying a corporate bond instead. the effect will be to lower corporate bond rates and corporate spreads. or, a bank may, having sold its treasury securities may decide to make a loan instead. so it's not just the effect on the long-term interest rate. but there's a broader set of effects that feed through other asset prices, other interest rates, other spreads an provide a broader ease in financial conditions which is supportive to the economy.

>> thank you. jeff kearns from bloomberg news. given the projections today going out to 14, seeing unemployment almost where it is now for another two years, can you look past 2014 and can you -- now that we're five years past the top of the stock market, six years past the top of the housing market, can this go on for a decade? can this go on longer? can you reassure americans that it won't go on for a dozen years like the depression? >> well, it's our intention to do all we can to make sure it doesn't go on indefinitely. unemployment is still too high. but it has come down. it was about 10% at the peak and now it's closer to 8%. it's going down too slowly but it is going down. our sense is that people are finding jobs, but just not at

the rate we would like to see and, you know, as i said, as the statement says, if we don't see continued improvement in labor market we'll be prepared to take additional steps if appropriate. >> ben from "the new york times." i'm looking at the projections you all released today that show that unemployment will be between 8 and 8.2% at the end of the year. you told congress earlier this month the defining factor in your decision about whether to do more would be whether unemployment was coming down. that's barely a decrease and i guess i'm struggling to understand why in that context you are not doing more now particularly when you say you can do more and that you would do more if it wasn't happening. >> well, first of all, again, we did take a substantive step today by extending the maturity extension program to the end of the year. again, i think that's the meaningful additional step. >> [ inaudible ].

>> it depends on each individual has their open path of optimal policy. we'll provide more information about that in the minutes. but again, we're prepared to do more. we have to get i think further information about the state of the economy, about where things are going, about what's happening in europe. i guess i would add to that, though, that, you know, each of these nonstandard programs does have various costs and risks associated with it with respect to market functioning, with respect to financial stability, with respect to the exit process, and so i don't think they should be launched lightly. i think there should be some conviction that they're needed but if we come to that conviction we'll take those additional steps. christina pet. i atpean policymakers are firs line of defense fo the european debt crisis, but under what ircumstances would the fed decide to get more directly involved or coordinate on

with other centr banks? >> well, as you say, europeans are the first line. europe is a wealthy area. they have adequate resources to address these problems. they are very committed to addressing these problems because keeping the eurozone together, keeping the eurozone trading block together is very important to the economies of those countries. we leave to them the leadership. the federal reserve is very much involved in talking with and consulting with european leaders. i talk frequently to central bankers in europe including mario and others, we try to provide whatever help and support we can. we did, of course, coordinate ps toer central f banks wh in reducing pressures in dollar funding markets and allowing european banks to continue lending in dollars including two u.s. borrowers.

so at this point, we're nsulting frequently. we are prepared tth that can be nstructive. but at thipoou now, we'rmostlyjust in cotaode. >>eter barns. bout trying to get a little help from some of the other branches of government that leads to the questions about the fiscal cliff. have you sen anye that the lack of progress on resolving the fiscal cliff issue is having an on the economy right now, is it slowing economic growth right now, job creation as we saw last year during this very same debate, and if yu'reotgt and you haven itseenyet, when could we - might we start to see it hit the economy and hurt the economy? >> well, i think it's still bit early, but as which move forward in the year, we do anticipate that the uncertainty associated with the so-called

fiscal cliff will have some economic effects. we heard anecdotes today in the mein firms that might be government contractors re not sure about whether the contractwould stl be in place come january and making ployment decisions based than. more generally financial markets don't like uncertainty and particularly uncertainty of this magnitude and ilth i so that unrtainty is there at i ink mtport imtly is that ressnget the poly ght. i've talked about three elements for fiscal policy. the first is to do no harm as far as the recovery is concerned. to try to avoid a fiscal cliff that would significantly damage the recovery. but second to maintain the chie t a sustainable fiscal path over the longer rm anthird, touseiscal policy effectively to have a better tax code, to make good use of government spending programs and make them efficient and

fee on. k if congre doe those things, the ultimate benefits would be substantial. >>et bloomberg tele if i could follow up on peter barns question. listening to your answer here how becial would it be for the u.s. economy right now given some of thealk on capitol hill that they -- lawmakers in the administration deal with the issues perhaps temporarily kick the can down the road into next year, deal with it sooner rather than later would that limit some of the uncertainty in the short term or be beneficial given the state of the economy at this present moment? >> that's a difficult problem. i'm not entirely sure. on the one hand, little clarity would probably be helpful for the reasons i described because people are uncertain about what's going to happen and on the other hand, investors i know would like to see congress actions that put us on a long-term sustainable fiscal path. simply kicking the can down the

road without any other indication of what might be ne, wh kinds of policies might be enacted, could be a negative for sentiment because it might induce people to worry more about the seriousness of congress in addressing our fiscal issues. >> shahhome with the "financial times." mr. chairman one critique of the fed's acom daytive actions over the past few years it's helped those with the least propensity to spend, wealthy, large businesses and corporations while the fed's impact on those with the most pro penny to spend, cash strapped and middle-income households has been muted. i was hoping you could address this criticism with an access to credit? >> sure. access to credit is a major issue no question about it. mortgage access is much tighter even credit card access is mo . rericted than it has been in the past. that -- what that does is to

soent mutes thimpact of the fed's actions. that being said, i don't think it's at all accurate the federal reserve policy is not helping the broad public. first of all, many americans are able to take advantage of lower interest rates. many people have refinanced or bought homes. others have taken out loans to buy cars, auto loans are cheap and broadly available. so there has been impact through lower interest rates. but i think more broadly is the indirect effects. if a firm has a low o cost pital and we he seen a lot corporrrowate bog last couple years, then 'r m likely to expand, to add pil, to add products, and to which the payrolls have thoue

increased the last few years has been disappointing, there have been significant increases and the unemployment rate has come down by two percentage points. some of that comes from the broad impact of fed policy on spendi, instment and effecaffect the broad itl by hiring and b promoting demand for products that people are producing. >> to kevin. and then ov to marcy. hi, than. vin hwi if y could flush l out atle more detail about where you k e oke points are in the economy. yesterday there was the mid year outlook in which they blamed full percentage point of the slow down on fiscal cliff and more importantly, europe, much bigger pass-through than anyone anticipated. today the business round table said europe not so much the

economy, ceo of boeing said we're already trimming jobs, we're already cutting back. everybody else in the aerospace he thinks is doing the same. what are you hearing? are you on the phone with people, your predecessor was what is your sense oher choke points aret are continuing to thwart hiring? >> sure. i gave a listom of the head winds in some of my opening remarks. hii hhe european situation is slowing u.s. economic growth. first of all, europe is if not in a recession, in every country, and certainly in many countries are in recession. and that affects our trade with europe, and demand for our products. more broadly, of european conrns on financl rkets have added to prices, have increa crit spreadnd generally have been a netive f ecogwth. so that has been an issue. and more broadly, e seen some slowing in global economic grth more generally, including in asia, which also has reduced

somewhat our ability to export. so that's one set of concerns that's been important. i had mentioned two others i think as being primarily important. one is housing. housing usually plays a very important role in economic recovery. both through construction itself and related industries, but also because higher house prices increase consumer wealth and promote consumer spending. housing does seem to be doing somewhat better. there are some good signs in housing, but nevertheless, we're not getting the size of the boost, the amount of help in a recovery we would normally get from a housing recovery. the other area is, as you indicated, fiscal. and is that happens at all different levels. federal, state and local. notwithstanding programs earlier on in the last year or two, and going forward, we have been seeing fiscal consolidation, particularly the state and local

level. of course, tight budgets have led to a lot of layoffs and cancellation of projects and so on. i understand that these are necessary steps from the perspective of individual states and localities. i'm not criticizing that. it's just a fact, though, that these contractions are affecting the pace of growth in the broader economy. so i think those would be the main things i would point to. and put them all together, and you have an economy which is growing less quickly than it normally would following a recession of the magnitude we saw. >> marcy and then to darren. >> thank you, marcie gordon with p.a.p. given the environment you've sketched out and the fact that interest rates are at historically low points, would it make sense, would it be an option for the government to issue more long-term debt at

this point and take advantage of that? >>el well, the government is very gradually increasing the duration of its debt, the treasury, i mean. and it's been doing that for some period of time. there's a bit of an issue here, which is that what the federal reserve is doing with the program we announced today, the maturity extension program, we're taking longer-term -- longer-term debt off the market in order to induce investors to move into other assets and lower, longer-term interest rates. to the extent that they actively sought to lengthen duration of its borrowing, it would to some extent offset the benefits of those policies. so my underandi o t wat treasury is doing is they have a plan, they're sticking to that plan. and therefore on the margin, the effects of the fed's actions can be felt.

>> darren. >> darren gross withus report. you clearly seem to be waiting on the labor market. can you be more specific? what exactly are you looking for? is there a rate of job growth you need to see, and also the unemployment rate comes down. is that enough, or are you going to also look at labor participation and the whole gestalt? >> well, i can't give you any specific numbers, because this is ultimately a committee decision. and other measures of labor market activity and try to make a sense -- try to get a sense of whether or not the labor market is improving in a sustainable way. it's not a month-to-month proposition. this year already we've seen a few months of very strong job gains, then we saw two months of weaker gains. obviously, month-to-month, there's going to be statistical noise, there's going to be weather, there's going to be a lot of factors that can cause

job gains to vary. so the question is, is the improvement sustainable? is it long-lasting? that's the kind of thing we'll be looking at. but i really can't be too much more specific than that. >> okay, we'll go to steve and then donna. >> steve beckner of market news international, mr. chairman. when you speak of the fiscal cliff, typically you don't differentiate between the automatic tax hike and the automatic spending cuts, which leaves the impression you're giving equal weight to both sides. some would contend that the automatic tax hikes would be more onerous. how do you -- how do you parse relative importance of those two aspects? and if i may be permitted, i'm also curious to know how the fed is going to conduct open market operations if, as the new york fed statement says, by the end

of this year they'll essentially have no short-term securities to use. >> well, on the fiscal cliff, i mean, just the way that the programs are set up, the dollar amount associated with the tax expirations -- tax cut expirations, including the payroll tax cut and so on, is larger than the spending cuts, as i understand it. but i'm not making any judgment about individual programs. the point here is that putting all these things together, you have a very substantial withdrawal of income from the economy that will affect spending, and will affect the ability of the economy to recover in the short run. again, in making decisions about how to modify those automatic changes, congress obviously has to look at the long run with what's the most efficient tax structure, what's the best way to spend our limited resources? those are tough decisions that congress has to make. but in terms of the fiscal

cliff, in terms of what's going to happen in january, the -- it's really the total of both spending cuts and tax increases, which has the impact, which not only we, but others like the congressional budget office have identified as being -- as being a concern. we'll still be able to do open market operations with our securities. even if the amount of short-term debt is very low. and indeed, of course, over time the -- as securities come close to maturation, we'll have other securities that are of short duration. >> donna and then mark. >> hi, chairman. donna bore ack with american banker. there are questions raised as to whether the volcker rule would have helped the loss of jpmorgan. given that lawmakers are in the rule writing process a