The central tendency of the November FOMC forecasts is that unemployment will remain above 9 percent throughout 2011. I would agree with those forecasts. Even more troublingly, I expect too that unemployment is likely to be higher than 8 percent as late as the end of 2012.

Overall, however, improving household and business confidence, accommodative monetary policy, and more-supportive financial conditions, including an apparent increase in the willingness of banks to make loans, seems likely to lead to a more rapid pace of economic recovery in 2011 than we saw last year.

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Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.

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On the inflation front, we have recently seen significant increases in some highly visible prices, notably for gasoline...  To assess underlying trends in inflation, economists also follow several alternative measures of inflation; one such measure is so-called core inflation, which excludes the more volatile food and energy components and therefore can be a better predictor of where overall inflation is headed. Core inflation was only 0.7 percent in 2010, compared with around 2-1/2 percent in 2007, the year before the recession began. Wage growth has slowed as well, with average hourly earnings increasing only 1.8 percent last year. These downward trends in wage and price inflation are not surprising, given the substantial slack in the economy.

Inflation is currently measured at lower-than-desired rates. A few months ago, fear of deflation was justified, but recently this concern has abated and the rate of inflation seems to have stabilized. Concern about inflation is rising because of higher gasoline prices and higher commodity prices, including food commodities. We are hearing stories that businesses incurring higher input costs may try to pass them through to retail prices. Higher input costs have not, however, translated to broad inflation of consumer goods and services. And, importantly, longer-term inflation expectations have stabilized in a healthy range. Through 2011 and 2012, I expect gradual firming of underlying inflation pressures from current very low levels to healthier levels.

STEVE LIESMAN: There's a lot of talk about the distortions that out there that Fed policy is really punishing savers. Do you agree with that and is it something that you think is useful or warranted for the overall health of the economy?

CHARLES PLOSSER: Well, I think the judgment has been-- and the reason policy has been what it is is that judgment has been that for the sake of the economy as a whole that we're willing to tolerate if you will, that. But it's certainly true that low interest rates of close to zero are punishing savers, there's no question to that. But that-- the idea policy of that is to sort of get people to quit saving and start spending. So that's kind of one of the objectives.

But it is, the people who are on fixed incomes-- I think there are some real risks that-- if they can't get a return on their savings they start liquidating their assets, liquidating their wealth in order to live. Well, that means that in future generations who would have inherited some of that wealth from their parents let's say, aren't going to get it, it's going to be gone.

STEVE LIESMAN: I've also had portfolio managers complain to me about the Federal Reserves saying, "You're forcing me into a risk profile I do not want to be in." How do you respond to that?

CHARLES PLOSSER: Well, I think there's some cases where that's probably true. I've talked to money managers and financial managers and private equity people in the financial markets. And a lot of them do share the view that somehow in the stretch for yield many people are taking unwise risks. Now, of course the Fed has made it very clear that at times we're trying to force people to take some more risk, but we can't control how that happens.

And so by trying to push people into riskier assets as we're trying to do with Operation Twist or with an Asset Purchase Programs, we don't know the full consequence with that. And we could, could-- I don't want to say we are, we could be breeding some problems for us down the road if we don't exit in the right time. And then we go past the exit and we have another credit bubble of some kind.

I expect core inflation to remain below 2 percent over the next several years.

While the outlook may not have improved enough yet to warrant adjusting our purchase plans in the near-term, I anticipate earnest re-evaluation as economic developments unfold in the months ahead.

While the outlook may not have improved enough yet to warrant adjusting our purchase plans in the near-term, I anticipate earnest re-evaluation as economic developments unfold in the months ahead.

Interest rates are higher, but I think that's mostly because the news is better. So I think the policy has helped.

The population of the United States has grown about 2.6 percent from November 2007 through November 2010. This means that real GDP per person is still 2.6 percent lower than its level in the fourth quarter of 2007. Also, historically, real GDP per person in the United States grows at roughly 2 percent per year. Suppose that real GDP per person had grown at that rate over the past three years. Then, real GDP would be 8.6 percent higher in the fourth quarter of 2010 than it actually is. As you will hear, I expect this 8.6 percent differential to change little, if at all, by the end of 2011. The recession has had and will continue to have a large and persistent impact on the U.S. economy.

The drag of uncertainty on economic activity persists as we enter 2011. That said, I would argue that the pall of uncertainty has lifted somewhat, and improved visibility could encourage more business risk taking and consumer spending.

More recently, however, we have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold.

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Although it is likely that economic growth will pick up this year and that the unemployment rate will decline somewhat, progress toward the Federal Reserve's statutory objectives of maximum employment and stable prices is expected to remain slow. The projections submitted by Federal Open Market Committee (FOMC) participants in November showed that, notwithstanding forecasts of increased growth in 2011 and 2012, most participants expected the unemployment rate to be close to 8 percent two years from now. At this rate of improvement, it could take four to five more years for the job market to normalize fully.

60 Minutes: You seem to be saying that the recovery that we're experiencing now is not self-sustaining.

Bernanke: It may not be. It's very close to the border. It takes about two and a half percent growth just to keep unemployment stable. And that's about what we're getting. We're not very far from the level where the economy is not self-sustaining.

Well, I think there is a fair amount of empirical evidence that suggests that there is a stall speed for the economy. One interesting fact from the post war-- World War II period in the United States is we've never had a three-tenths of a percent rise in the unemployment rate without actually once it goes up three-tenths of a percent, we end up having a full blown recession.

And the next-- increase after three-tenths of a percent, the smallest is 1.9 percentage points. So that we've never had an increase in the unemployment rate of just a half a percent, or just one percent, or just one and a half percent.  So that does suggest that that-- that once you get to a certain point, and an unemployment rate goes up enough, that starts to weigh on confidence, that starts to weigh on spending. If spending is cut back, that leads to more unemployment, and the economy cycles down into recession.

We are barely cruising above what we at the Dallas Fed call “stall speed.” Annual real gross domestic product (GDP) growth below 2 percent has predicated every recession since 1970. If we continue to barely clear the 2 percent hurdle, the pace of economic recovery will be insufficient to create the number of jobs the United States needs to bring down unemployment significantly in the foreseeable future. If we cannot generate enough new jobs to sufficiently absorb the labor force over the intermediate future, we cannot expect to grow the final demand needed to achieve more rapid economic growth.

Viewed through the lens of the Federal Reserve's dual mandate—the pursuit of the highest level of employment consistent with price stability, the current situation is wholly unsatisfactory. Given the outlook that the upturn appears likely to strengthen only gradually, it will likely be several years before employment and inflation return to levels consistent with the Federal Reserve's dual mandate.

Later, in remarks to reporters: