healthy. it would be far more disruptive to implement fundamental structural changes during difficult economic times. second, memories of the crisis are fading. if congress does not enact reforms over the next few years, we are at risk of settling for the status quo — a government - dominated mortgage market with insufficient private capital to protect taxpayers, and insufficient competition to drive innovation. there is a serious risk, if not a likelihood, that this state of affairs may persist indefinitely, leaving our housing finance system in a semi - permanent limbo. fortunately, we are blessed with a growing menu of reform options available for public vetting. and there appear to be areas of broad agreement among them. one of those plans, or a combination of different features of various plans, might well suffice to move us to a better system. housing finance reform will protect taxpayers from another bailout, be good for households and the economy, and go some distance toward mitigating the systemic risk that the gses still pose. 1 the views i express here are my own and not necessarily those of the board of governors of the federal reserve system. 2 see, for example, markus k. brunnermeier, “ deciphering the liquidity and credit crunch 2007 – 2008, ” the journal of economic perspectives, vol. 23, no. 1 ( winter 2009 ), pp. 77 – 100 ; major coleman iv, michael lacour - little, and kerry d. vandell, “ subprime lending and the housing bubble : tail wags dog? " journal of housing economics, vol. 17, issue 4 ( december 2008 ) pp. 272 – 290 ; shiller, robert j. ( 2012 ) the subprime solution : how today ’ s global financial crisis happened, and what to do about it, princeton, new jersey : princeton university press ; e. pinto ( 2015 ), “ three studies of subprime and alt - a loans in the u. s. mortgage market, ” american enterprise institute ( january 2015 ), www. aei. org / wp - content / uploads / 2014 / 09 / pintogovernment - housing - policies - in - the - lead - up - to - the - financial - crisis - 3 - studies - 1. 6. 15. pdf. 3 see, for example, alan greenspan, “ government - sponsored enterprises, ” remarks delivered at the conference on housing, mortgage finance, and the macroecono

run neutral rate to rise somewhat higher than the longer - run neutral rate. further out, the policy path will depend on how the economy evolves. these developments raise the prospect that, at some point, the committee ’ s setting of the federal funds rate will exceed current estimates of the longer - run federal funds rate. indeed, the median projection in the sep has this property. this raises the possibility of a flattening or inversion of the yield curve in the event that term premiums do not rise from their currently very low levels. 15 the standard expectations hypothesis model decomposes longer - term interest rates into a component that represents the influence of expectations of future short - term interest rates and a “ term premium. ” most estimates of the term premium, which are model - based, suggest that term premiums have been very low recently, and some suggest that term premiums are roughly zero across the yield curve. if term premiums remain low and stable, the component associated with expectations of future short - term interest rates will dominate movements in long - term interest rates. - 9 like many of you, i am attentive to the historical observation that inversions of the yield curve between the 3 - month and 10 - year treasury rates have had a relatively reliable track record of preceding recessions in the united states. 16 but unlike these historical episodes, today the current 10 - year yield is very low at around 3 percent, which is well below the average of 6 - 1 / 4 percent during the decades before the crisis. part of the reason the 10 - year treasury yield is unusually low is that market expectations of interest rates in the longer run are themselves quite low, as discussed earlier. another important reason the 10 - year treasury yield is very low is that the term premium has fallen to levels that are very low by historical standards. according to one estimate from federal reserve staff, the term premium has been slightly negative until very recently and remains very low. 17 by contrast, it was close to 100 basis points when the spread between the 3 - month and 10 - year treasury yields was at its peak of 325 basis points in early 2010. this may temper somewhat the conclusions that we can draw from historical yield curve relationships characterized by a substantially higher term premium. if the term premium remains very low, any given amount of monetary policy tightening will lead to an inversion sooner so that even a modest tightening that might not have led to an inversion historically could do so today. one reason the term premium may