in context. while this decision was the first upward adjustment bis central bankers ’ speeches to short - term rates in nearly 10 years, the actual move was small – only 25 basis points – which, by itself, should have only a very mild impact on the overall trajectory of the economy. as we noted in the fomc statement and as chair yellen pointed out in her december press conference, even after this rate hike, the stance of monetary policy remains accommodative. moreover, it is important to recognize that there are also significant risks from waiting longer to lift off. upside forecast errors are also certainly possible. for example, while the pace of growth has generally been weaker than expected in recent years, the pace of labor market improvement has generally been stronger. by waiting, we would increase the risk that we would need to raise rates more aggressively in the future. this could unduly threaten the economic expansion. in balancing these risks, relatively “ early and slow ” seems like a better strategy than “ late and fast ” – especially when one is uncertain both about the degree of accommodation being provided by monetary policy and the level of unemployment consistent with our price stability mandate. because monetary policy works with a lag, policy normalization needs to begin before the economy reaches its employment and inflation objectives. that is, if we are to get to a neutral monetary policy setting before inflation materially overshoots our 2 percent objective, then we need to get started. once underway, the pace of policy tightening can be calibrated to how the economy and financial market conditions are responding. a particular risk of late and fast is that the unemployment rate could significantly undershoot the level consistent with price stability. if this occurred, then inflation would likely rise above our objective. at that point, history shows it is very difficult to push the unemployment rate back up just a little bit in order to contain inflation pressures. looking at the post - war period, whenever the unemployment rate has increased by more than 0. 3 to 0. 4 percentage points, the economy has always ended up in a full - blown recession with the unemployment rate rising by at least 1. 9 percentage points. this is an outcome to avoid, especially given that in an economic downturn the last to be hired are often the first to be fired. the goal is the maximum sustainable level of employment – in other words, the most job opportunities for the most people over the long run. some of you may be wondering whether the risk

the euro area. a number of further positive effects on economic growth flow from the elimination of separate currencies in the euro area countries. one benefit is the potential for the reduction of risk premia built into real interest rates. this in turn will stimulate investment. by facilitating the development of deep and integrated capital markets, the single currency should further reduce long - term rates via the elimination of premia resulting from less liquid markets. for example, empirical research has shown that due to more liquid markets, us long - term interest rates are 25 to 50 basis points lower than comparable european interest rates3. in addition, a wider and deeper capital market in the euro area will improve intermediation between savers and investors. finally, emu may stimulate further political integration of europe. in general, the process of european integration has been driven and continues to be driven by the political conviction that an integrated europe will be safer, more stable and more prosperous than a fragmented europe. in this sense, the introduction of a single currency in the euro area could become an important symbol of political and social integration in europe. it could serve as a catalyst for further integration in other areas. ensuring the benefits ( i ) : a stability - oriented monetary policy as i mentioned earlier, the most important contribution of the eurosystem ’ s monetary policy to economic growth in the euro area is achieving its primary objective of maintaining price stability. the specific way in which the ecb should pursue this primary objective is laid down by what is called the monetary policy strategy. i should like to address now the main aspects of the eurosystem ’ s strategy. first, in order to guide expectations of future price developments and to facilitate the public ’ s assessment of the success of the single monetary policy, the governing council of the ecb has announced a quantitative definition of its primary objective. that is, price stability has been defined as a year - on - year increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 %. price stability is to be maintained over the medium term. second, to maintain price stability according to this published definition, we have chosen a distinct monetary policy strategy, one that reflects the special circumstances that exist at present as well as those likely to prevail in the foreseeable future. it ensures as much continuity as possible with the strategies previously pursued by the ncbs. at the same time, it gives due consideration to the unique situation that prevails in