risk will not be forgotten, at least not for a cycle. recent monetary policy actions the financial shock of 2007 and its potential threat to the economy changed the view held by the federal open market committee ( fomc ) of the most appropriate stance of monetary policy. the stresses led to greater financial restraint on economic growth. impaired price discovery impeded the flow of capital. at the time of our september meeting, the downside risks to the real economy appeared to have increased ; greater uncertainty could have led lenders and investors to pull back further. moreover, data on inflation were relatively stable, and inflation expectations appeared to remain anchored. from a risk - management perspective, these circumstances warranted a strong policy action. by doing more and sooner, the fomc intended its policy action to counterbalance the tighter financial conditions and help forestall some potentially adverse effects of financial market disruptions on the real economy. to that end, the fomc cut its target for the federal funds rate 50 basis points at its september meeting. subsequent economic information received suggests that activity in the third quarter expanded at a solid pace, even though housing activity subtracted about 1 percentage point from real activity. some indicators, however, suggest that activity may have slowed in the current quarter, and the prospect that such perceived softness may prove real and enduring is understood. in addition, stresses remain evident in certain asset and credit markets, even though financial market conditions today appear much improved from their august nadir. there are also important reasons to be concerned about the outlook for inflation. although recent readings on core inflation have been favorable, prices of crude oil and other commodities have increased. these changes most likely will put upward pressure on overall inflation in the short run. moreover, the decline in the foreign exchange value of the dollar could lead to higher prices for imported goods. if these same forces cause inflation expectations to become less reliably anchored, then inflation could increase in the longer run as well. as you know, last week, the fomc reduced its target rate an additional 25 basis points, to 4 - / 2 percent. combined with the action of the september meeting, the fomc judged that the cumulative policy easing of 75 basis points reduced the downside risks to growth, and that these risks were now roughly balanced by the upside risks to inflation. should incoming data materially change our forecast, or risks to our forecast, for growth and inflation, so too would our view on the appropriate stance of monetary policy. conclusion

percent, inflation has recently moved close to that level. our challenge will be to keep it there. many factors affect inflation — some temporary and others longer lasting. inflation will at times be above 2 percent and at other times below. we say that the 2 percent objective is “ symmetric ” because the fomc would be concerned if inflation were running persistently above or below our objective. 2 / 3 bis central bankers'speeches the unemployment rate is low and expected to fall further. americans who want jobs have a good chance of finding them. moreover, wages are growing a little faster than they did a few years ago. that said, they still are not rising as fast as in the years before the crisis. one explanation could be that productivity growth has been low in recent years. on a brighter note, moderate wage growth also tells us that the job market is not causing high inflation. with a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the fomc believes that — for now — the best way forward is to keep gradually raising the federal funds rate. we are aware that, on the one hand, raising interest rates too slowly may lead to high inflation or financial market excesses. on the other hand, if we raise rates too rapidly, the economy could weaken and inflation could run persistently below our objective. the committee will continue to weigh a wide range of relevant information when deciding what monetary policy will be appropriate. as always, our actions will depend on the economic outlook, which may change as we receive new data. for guideposts on appropriate policy, the fomc routinely looks at monetary policy rules that recommend a level for the federal funds rate based on the current rates of inflation and unemployment. the july monetary policy report gives an update on monetary policy rules and their role in our policy discussions. i continue to find these rules helpful, although using them requires careful judgment. thank you. i will now be happy to take your questions. 3 / 3 bis central bankers'speeches