, in june 2017, the fomc provided additional details regarding its approach to reduce the federal reserve ’ s securities holdings, indicating that once the balance sheet normalization plan began, principal payments received from securities held by the federal reserve would be reinvested only to the extent that those payments exceeded certain monthly caps. the caps would rise gradually but would remain in place during the normalization process. the june 2017 announcement, addendum to the policy normalization principles and plans, is available on the board ’ s website at www. federalreserve. gov / monetarypolicy / files / fomc _ policynormalization. 20170613. pdf. 10 for a discussion of the pre - and post - crisis frameworks for implementing short - term interest rate decisions, see jane e. ihrig, ellen e. meade, and gretchen c. weinbach ( 2015 ), “ rewriting monetary policy 101 : what ’ s the fed ’ s preferred post - crisis approach to raising interest rates? ( pdf ) " journal of economic perspectives, vol. 29 ( fall ), pp. 177 – 98. 11 the federal reserve created supplementary tools to be used as needed to help strengthen its influence over short - term interest rates when reserves are plentiful. for instance, the overnight reverse repurchase agreement facility allows a variety of counterparties, including eligible money market funds, government - sponsored enterprises, broker - dealers, and depository institutions to invest funds overnight with the federal reserve at a rate determined by the fomc. 12 for a discussion of how increases in the fomc ’ s target range for the federal funds rate have transmitted to other short - term interest rates, see alyssa anderson, jane ihrig, mary - frances styczynski, and gretchen c. weinbach ( 2017 ), “ how have the fed ’ s three rate hikes passed through to selected short - term interest rates? ” feds notes ( washington : board of governors of the federal reserve system, june 2 ). 13 the fomc ’ s announcement of the beginning of implementation of the balance sheet normalization plan is available on the board ’ s website ; see board of governors of the federal reserve system ( 2017 ), “ federal reserve issues fomc statement ( pdf ), ” press release, september 20. 6 / 7 bis central bankers'speeches 14 see brian bonis, jane ihrig, and min wei (

acceleration in productivity over 1997 as a normal cyclical phenomenon. there was some surprise about how low productivity growth was during 1994 through 1996. but now the level of productivity has returned to where it would be expected to be in light of the cyclical rebound in output. i have kept the traditionalist and new era stories strictly distinct - - either, or. but, the truth could well be a blend of the two. lessons and questions what are some of the lessons and lingering questions arising from the growth and inflation outcomes last year? first, the strength of consumption over the year reaffirmed, in my view, the importance of the wealth effect. second, the excellent price performance in 1997, in the context of the surprise of a higher dollar and the resulting sharper - than - expected decline in import prices, suggests to me that we might be underestimating the effect of import prices on overall inflation. many models, in particular, ignore the role of falling import prices in undermining the pricing power of producers of import - competing goods. this seemed to have been a clearly important factor in pricing decisions in the domestic auto industry, for example, over the past year. based on the experience last year, i would revisit this channel. third, the pattern of wage change and inflation did not definitively reject the estimates of nairu and trend growth that underpinned my forecast ; but neither did the outcome entirely reinforce my confidence in them. the poor forecast of inflation was not principally due, in my judgment, to errors in the wage and price equations. nevertheless, i would have made smaller forecast errors if i had used an estimate of nairu a bit below my current estimate of 5½ % and would have made a smaller error forecasting inflation if i had used a slightly higher estimate of trend growth. the experience in 1997 did not put to rest these questions. fourth, i wonder whether the divergent pattern in unemployment and capacity utilization rates contributed to the lower - than - expected inflation last year. i believe this issue deserves more attention. traditionally, these two measures of excess demand move together over the cycle. in the current episode they have diverged. the capacity utilization rate for manufacturing barely budged over 1997, remaining slightly below the point at which it has traditionally been accompanied by an increase in inflation. if the historical relationship between unemployment and capacity utilization had been operative in this expansion, the capacity utilization rate would be more than two percentage points higher today. the failure of capacity utilization