with some caveats. first, these aggregate statistics can mask some important variations, and there are some local markets where, as in the prior boom, both house prices and mortgage growth are quite strong. similarly, there exist substantial differences across households in their financial situation and their ability to improve their balance sheets. borrowers with little equity, low credit scores and slow income growth face difficulties refinancing into low rate mortgages. as a result, this subset of the population has been less able to deleverage and still faces bis central bankers ’ speeches relatively high debt service costs, which constrains their consumption, investment and saving behavior. so, even within what looks to be a stable overall mortgage market, there are some things that we must continue to monitor. second, there are other difficult challenges that many households face, particularly with respect to a subject we ’ ve discussed on previous occasions – student loans. on balance, though, households are in a much better position today than they were in 2008. now, i ’ d like to turn things over to our economists, beginning with andrew haughwout, who will provide a more detailed discussion of household sector finances. bis central bankers ’ speeches

funds market at rates below the ioer rate, and can arbitrage away any significant price gap that emerges from the activity of non - depository institutions that can buy and sell federal funds, but cannot hold reserves at the fed. thus, through the ioer rate, the federal reserve can effectively control the fed funds rate. indeed, even the opportunity cost of making the loan is similar in both instances. a bank that has excess reserves and decides to extend credit forgoes the chance to earn the ioer on the money lent out. a bank that borrows reserves in the fed funds market in order to extend credit pays the fed funds rate in order to do so. the ioer and fed funds rate are likely to be similar. bis central bankers ’ speeches so we have the means to tighten monetary policy when the time comes, but do we have the will? i think there should be no doubt about this. it is well understood among all the members of the fomc that allowing inflation to gain a foothold is a losing game with large costs and few, if any, benefits. in this regard, some have argued that fed officials might be reluctant to raise short - term rates because such increases would squeeze the net interest margin on the fed ’ s system open market account ( soma ) portfolio. although it is true that a rise in short - term interest rates would reduce the fed ’ s net income from the extraordinary high levels seen in 2009 and 2010, 4 this will not play a significant role in the fed ’ s monetary policy deliberations. fed policy is driven by the objectives set out in the dual mandate, and the net income earned by the fed is the consequence of the policy choices that advance those objectives. the federal reserve ’ s net income statement does not drive or constrain our policy actions. in short, we act as a central bank, not an investment manager. it is also worth pointing out in passing that a failure to raise short - term interest rates at the appropriate moment based on our dual mandate objectives would also be a losing strategy with respect to net income. inflation would climb, bond yields would rise and the fed would ultimately be forced to raise short - term rates more aggressively, or to sell more assets at lower prices to regain control of inflation. this would almost certainly result in larger reductions in net income than a timelier exit from the current stance of monetary policy. so what does this all imply for monetary policy? first, barring a