Financial Conditions and the Economic Outlook

The beginning of a new calendar year is a popular occasion for discussing the outlook for future economic conditions. Recent trends to some extent have dampened enthusiasm for this annual exercise. On the other hand, uncertainty about the economic outlook looms particularly large now, and the economic policy challenges we face are particularly profound, so perhaps the returns to such a discussion are above average this year, even if our zeal for the topic is a bit below average. The basis for dampened enthusiasm regarding this year's economic outlook is fairly clear. The U.S. economy has been in a recession for a year now, and the pace of the contraction in economic activity appeared to increase markedly around the end of September. In my remarks today, I will discuss the factors I see affecting the outlook for the U.S. economy and monetary policy. As always, the views I express will be my own, and may not coincide exactly with the views of all of my Federal Reserve System colleagues.1 I will devote special attention to recent financial market conditions, because the financial market turbulence that has been so striking over the last year-and-a-half looms large in any discussion of the economy and economic policy these days.