high by historical standards, overall vulnerabilities in the financial sector appear moderate, as the banking system is well capitalized and broad measures of leverage and credit growth remain contained. even with a step - up in growth of economic activity and a stronger labor market, inflation has continued to run below the 2 percent rate that the federal open market committee ( fomc ) judges most consistent with our congressional mandate to foster both maximum employment and price stability. increases in gasoline prices in the aftermath of the hurricanes temporarily pushed up measures of overall consumer price inflation, but inflation for items other than food and energy has remained surprisingly subdued. the total price index for personal consumption expenditures increased 1. 6 percent over the 12 months ending in september, while the core price index, which excludes energy and food prices, rose just 1. 3 percent over the same period, about 1 / 2 percentage point slower than a year earlier. in my view, the recent lower readings on inflation likely reflect transitory factors. as these transitory factors fade, i anticipate that inflation will stabilize around 2 percent over the medium term. however, it is also possible that this year ’ s low inflation could reflect something more persistent. indeed, inflation has been below the committee ’ s 2 percent objective for most of the past five years. against this backdrop, the 1 / 2 bis central bankers'speeches fomc has indicated that it intends to carefully monitor actual and expected progress toward our inflation goal. although the economy and the jobs market are generally quite strong, real gdp growth has been disappointingly slow during this expansion relative to earlier decades. one key reason for this slowdown has been the retirement of the older members of the baby - boom generation and hence the slower growth of the labor force. another key reason has been the unusually sluggish pace of productivity growth in recent years. to generate a sustained boost in economic growth without causing inflation that is too high, we will need to address these underlying causes. in this regard, the congress might consider policies that encourage business investment and capital formation, improve the nation ’ s infrastructure, raise the quality of our educational system, and support innovation and the adoption of new technologies. monetary policy i will turn now to the implications of recent economic developments and the outlook for monetary policy. with ongoing strengthening in labor market conditions and an outlook for inflation to return to 2 percent over the next couple of years, the fomc has continued to gradually reduce policy accommodation. the committee raised the target range

inflation rate rose, it would be largely superficial and gross domestic income ( gdi ) as well as gross national income ( gni ) would decrease ; as a result, people would not feel that the economy had overcome deflation ( chart 16 ). in sum, although the impact of developments in exchange rates on prices is substantial, pursuing a high price stability target of 2 percent solely through the exchange rate channel is not a balanced option. what should be aimed for is a rise in prices that accompanies an increase in income. however, it should be noted as well that underestimating the economic - stimulus effects of the ongoing depreciation of the yen on the asset markets is to take an unbalanced view. the asset markets, especially domestic stock markets, have underperformed compared to overseas markets due to the effects of the overappreciation of the yen, which has appreciated by about 40 percent in terms of the nominal effective exchange rate since the lehman shock. recently, however, in the process of correction of the yen ’ s overappreciation, the valuation of domestic stock prices has been revised, and the asset markets have become bis central bankers ’ speeches buoyant after a long period of inactivity. as i mentioned earlier, the recovery in asset prices could lead to an improvement in the output gap and in turn a rise in prices, by strengthening the risk tolerance of firms and households and then raising the level of total economic activity. therefore, i would like to continue to draw attention to the channel in which monetary policy indirectly exerts influence on foreign exchange rates. iii. recent economic activity and prices a. outlook for the global economy according to the latest global economic outlook released by the international monetary fund ( imf ) in january 2013, the global economy is expected to grow moderately at 3. 5 percent and 4. 1 percent in 2013 and 2014, respectively, and these growth rates are almost the same as or slightly above the average of the past three decades of 3. 4 percent ( chart 17 ). in the recent past, this outlook had been revised downward mainly due to the worsening of the european debt problem and the deceleration of the chinese economy. however, the global economy has not become subject to a considerable downward revision since summer 2012, because ( 1 ) the u. s. economy remained comparatively albeit modestly firm, ( 2 ) the tail risk receded substantially in europe thanks to a variety of policy developments, and ( 3 )