[I] wouldn't be surprised [if the Fed's policy of keeping rates low] gets extended just a little bit.

[I]t's true that things could happen that could change the pace of the exit strategy but I don't see them happening yet.  How the crisis in Europe develops will dictate how we respond.

Governments have made it very clear over the course of the last two years that they will not allow major financial institutions to fail outright at this juncture. Because these too-big-to-fail guarantees are in place, the contagion effects are much less likely to occur.

Swap lines played an important role in stabilising global dollar funding markets during the economic crisis.

It was very important, as it is important in the current instance, to be clear that we are not taking any fiscal risks. Swaps involve no credit risk because they are between central banks and not between central banks and other parties. They involve no exchange rate or interest rate risk because the interest rate is set in advance and the exchange rate is set in advance.

There is nothing intrinsic about [soveriegn debt] crises that they need to become important shocks to the broader, global macroeconomy.

Another means by which an intensification of financial turmoil in Europe could affect U.S. growth is by reducing trade. Collectively, Europe represents one of our most important trading partners and accounts for about one-quarter of U.S. merchandise exports. Accordingly, a moderate economic slowdown across Europe would cause U.S. export growth to fall, weighing on U.S. economic performance by a discernible, but modest extent. However, a deeper contraction in Europe associated with sharp financial dislocations would have the potential to stall the recovery of the entire global economy, and this scenario would have far more serious consequences for U.S. trade and economic growth. A resultant slowdown in the United States and abroad would likely also feed back into the health of U.S. financial institutions.

Although the sovereign debt crisis in Europe may have appeared to erupt virtually overnight, its origins were long in the making. For years many market participants had assumed that an implicit guarantee protected the debt of euro-area members. For a number of euro-area countries, including those most under pressure now, this presumption may have led to a systematic underpricing of risk, which made debt cheaper to issue than it probably should have been. Although strictures against excessive fiscal deficits and debts were built into the Maastricht Treaty, the European Union (EU) has had relatively weak mechanisms to enforce them, as EU officials themselves have recently acknowledged.

When the crisis was at its peak in the fall of 2008 and the first part of 2009, those [dollar currency] swap lines were heavily used across the countries...  But even though we've reopened the swap lines, it remains to be seen whether those swap lines will be used as much as before.

Another risk to the forecast is the recent developments in Greece, where concerns over unsustainable fiscal deficits have led to downgrades of Greek sovereign debt and potential contagion to other countries with similar deficit problems, such as Portugal, Spain, and perhaps others. Renewed financial market turmoil could retard the recovery in the U.S., and we are following developments in Europe closely.