. 4 the solid line gives just this federal debt to gdp ratio. when viewed in a historical context the federal deficit picture does not look particularly troubling. the primary deficit ratio has cycled around zero, and the debt - gdp ratio has cycled between 25 and 50 percent. the debt - gdp ratio had a long downswing in the 1960s and early 1970s, followed by a the precise proposition is that the primary, or noninterest, component of both budget and current account deficits must remain close to zero to stabilize the ratio of debt to national output. for a demonstration see edward m. gramlich ( 2004 ), " budget and trade deficits : linked, both worrisome in the long run, but not twins, " speech delivered at the euromoney bond investors congress, february 25, 2005. leonard nakamura ( 2005 ), the personal saving rate and the future of consumption, federal reserve bank of philadelphia, february, demonstrates a systematic tendency for personal saving rates to be revised upward. if this is so, it is possible that some of the recent dip will be revised away. economists have a ricardian equivalence exception - national saving rates do not follow changes in fiscal policy if private households offset fiscal actions with their own saving. in general, the evidence does not support this proposition. see douglas w. elmendorf and n. gregory mankiw ( 1999 ), " government debt, " in j. b. taylor and m. woodford, eds., handbook of macroeconomics, ( elsevier ). shown in gramlich, " budget and trade deficits. " long upswing in the 1980s. the united states ran fairly large primary surpluses in the 1990s, enough so to inspire talk of paying off the entire outstanding federal debt. but that brief period of good fortune has passed ; primary deficits are back, and the debt - gdp ratio is rising again. for the intermediate future, the picture worsens somewhat. recently, the congressional budget office ( cbo ) made projections for the next decade. one of their scenarios took the so - called baseline budget, added in likely military spending for iraq and afghanistan, extended the recently enacted tax cuts, and adjusted the alternative minimum tax for inflation. 5 under these assumptions, the recent turn for the worse is likely to be reversed only slowly. the primary deficit averages around 2 percent of gdp for the next few years before gradually shrinking, and the debt - gdp ratio climbs back to about 45

significantly over time, and estimates of its level entail substantial uncertainty. 11 before the crisis, the longer - run neutral real rate was generally thought to be roughly stable at around 2. 25 percent. since the crisis, estimates have declined steadily. for example, the median estimate implied by fomc participants stood at 1. 0 percent in the december 2016 sep. many analysts believe that the neutral rate is even see john h. williams ( 1931 ), “ the monetary doctrines of j. m. keynes, ” quarterly journal of economics, vol. 45 ( august ), pp. 547 - 87. see jerome h. powell ( 2016 ), “ discussion of the paper ‘ language after liftoff : fed communication away from the zero lower bound, ’ ” speech delivered at the 2016 u. s. monetary policy forum, new york, february 26, https : / / www. federalreserve. gov / newsevents / speech / powell20160226a. htm. see also michael feroli, david greenlaw, peter hooper, frederic mishkin, and amir sufi ( 2016 ), “ language after liftoff : fed communication away from the zero lower bound, ” paper presented at the 2016 u. s. monetary policy forum, a conference sponsored by the university of chicago booth school of business, held in new york, february 26 ; see https : / / research. chicagobooth. edu / igm / events / conferences / 2016usmonetaryforum. aspx. - 8lower than that today and will only return to its longer - run value over time. 12 one important implication is that today ’ s low rates are not as stimulative as they may seem - consider that, despite historically low rates, inflation has run consistently below target. monetary policy amid uncertainty i ’ d like to turn now to monetary policy. i expect the economy to continue broadly along its current path, which implies further labor market tightening and inflation edging closer to 2 percent. on this path, unemployment would decline modestly below current estimates of the natural rate and remain there for some time. i see that as a desirable outcome and do not see data suggesting that we are behind the curve. in recent years, the economy has faced significant downside risks, particularly from weak global conditions. the committee has been quite patient, and i believe that has served us well. but risks now seems to me to be more in balance