, trends on the natural rate of unemployment, changing risk premiums, the exchange value of the dollar, and marginal propensities to consume as asset values change, to name just a few. while these indicators and relationships are important, many of the enduring teachings needed to evaluate the financial markets and u. s. economy ( particularly in times of financial tumult ) are well known without the technical jargon all across the country : trees don't grow to the sky. there is no free lunch. you shouldn't put all your eggs in one basket. there is no substitute for doing your own homework. and my favorite, that which can't go on forever usually doesn't. 2 the views expressed herein are my own and do not necessarily reflect the views of other members of the board of governors or of the federal open market committee. i am grateful for the assistance of nellie liang and daniel covitz of board staff, who contributed to these remarks. that is a slight paraphrasing of herbert stein's self - styled " stein's law " ( herbert stein, 1998, what i think : essays on economics, politics, and life, washington : aei press, p. 32 ). my intent today is not to suggest that the federal reserve is somehow omniscient regarding the path of the u. s. economy. nor is it my intent to suggest that the federal reserve's knowledge and tools are sufficiently surgical to steer the u. s. economy completely unscathed through the choppy waters of financial market turbulence. and of course, i do not literally mean to suggest that common aphorisms provide an infallible compass to guide the economy past shocks of one sort or another. instead, my goal is to describe the federal reserve's monetary responsibilities, highlight the critical role of liquidity in financial markets, and discuss the recent financial market turmoil. while the subprime - mortgage markets showed some of the earliest and most pronounced indications of weakness, i believe that problems afflicting the subprime - mortgage markets served more as the trigger than the fundamental cause of recent market turmoil and economic uncertainty. monetary responsibilities and financial markets by way of background, allow me to highlight the federal reserve's dual mandate for monetary policy, as embodied in the federal reserve act. the federal reserve's statutory objectives are to institute policies that foster maximum employment and price stability. to ensure that these objectives are consistent with each other and

and mastery of the data with judgement and humility. in addition, teams of forecasters can produce better results when the team is open to sharing and constructive debate. alan blinder ( 1998 ), central banking in theory and practice, mit. achieve in the future and working backwards to form a plan today that will deliver that goal. in our case the goal is inflation near 2 percent in two or three years ’ time, and the plan is given by the forecast of the official cash rate ( ocr ). if events broadly unfold as envisaged then we carry out that plan, if not, then we adjust the plan. a feature of our inflation forecasts are that they always end up at the mid - point of the target band. when planning our actions we necessarily plan to succeed in achieving this target. if we thought we would not achieve this we would modify our ocr forecasts. as such, the forecasts show our judgement of the highest probability path to achieve the goal, but this path is not fixed. as new information becomes available, we assess it and where appropriate incorporate it into our understanding and our plans. consequently, our policy settings are, and should be, responsive to any developments that might occur, and should move rapidly when required. for example, the sharp fall in inflation expectations in march 2016 ( amongst other developments ) led to us substantially revise our 90 - day interest rate projection 6 and move away from a neutral stance to an easing bias ( figure 1 ). 7 figure 1 : inflation expectations and selected 90 day interest rate projections source : rbnz estimates. 6 since november 2016 this has been replaced by the ocr projection. for further detail see rebecca williams, ‘ business cycle review : 2008 to present day ’ rbnz bulletin 80 ( 2 ) march 2017. the value of producing quantitative forecasts : internal discipline and the learning process so why do we produce specific forecasts given that our forecasts are conditional and subject to radical uncertainty? being numerically precise about our view of the future allows us to test ideas, which in turn accelerates our ability to learn and understand what is going on. over time, this helps to ensure that our forecasts are as robust as possible and form a solid basis for monetary policy decisions, minimising potentially costly forecast errors and supporting good policy outcomes. testing is an integral part of robust analysis. as nate silver puts it, " the more eagerly we commit to scrutinising and testing our theories, the