of 2 percent on the pce measure. because monetary policy works with a time lag, we base policy not just on where the economy is today but where we expect it to be in the future. to do this, we make economic forecasts, based on data and insights from a broad range of economic models. we also take into account the balance of risks around our base case outlook. looking ahead, in the absence of further monetary easing, i concluded that growth would remain too subdued over the next several years to make big inroads into the spare capacity that remains from the great recession. as a result, unemployment would remain unacceptably high, with economic risks skewed to the downside. meanwhile, with substantial slack in labor markets and inflation expectations stable, inflation was likely to remain a bit below our 2 per cent longer - run objective. in this situation, i concluded that our policy framework means that further monetary policy easing was appropriate provided that the benefits of using the tools available outweighed the costs. in my judgment, this standard has been satisfied here. i am confident that the costs are manageable, based in part on the experience we have of using the tools these past four years and that the benefits substantially exceed the costs, recognizing, of course, that our actions are not so powerful that they will instantly transform the economic outlook. so how do our actions support economic activity? buying assets and extending interest rate guidance puts downward pressure on longer - term interest rates, so they are lower than they would otherwise be for any given economic outlook. this supports the price of assets such as equities and homes. buying mortgage - backed securities has the additional effect of bis central bankers ’ speeches narrowing the interest rate spread between these assets and treasuries, which further reduces mortgage rates. moreover, to the extent that our actions are seen as supporting the recovery and providing some insurance against adverse shocks, confidence in the mediumterm economic outlook should also increase, making businesses and households more willing to invest, hire and spend. if we are successful, long - term treasury yields could actually rise as confidence in a sustainable recovery increases. at the same time, the expected returns on private assets should rise and risk premia decline. this matters because such shifts would provide support to the economic recovery. now it is true that some of the channels through which monetary policy affects the economy may be partially impaired at the moment. for example, because of ongoing restrictions in the supply of mortgage

convert some of its agency mbs holdings to umbs where appropriate. see the statement regarding agency mortgage - backed securities, september 14, 2018. limited impact from the reduction in holdings on treasury yields and mbs spreads thus far. as shown in figure 6, comparing a matched sample of survey respondents in our july 2017 surveys to the september 2018 surveys, the expected impact on 10 - year treasury yields and 30 - year mbs option - adjusted spreads ( oas ) during the two - year period following implementation of the change to the reinvestment policy has declined, likely in part reflecting expectations for the balance sheet to normalize at a larger size. 15 looking forward, the median respondent currently anticipates the cumulative impact over the next two years to be 17 basis points for the 10 - year treasury yield, and 12 basis points for the 30 - year mbs oas. this gradual expected increase contrasts with the experience of the so - called “ taper tantrum ” in 2013, which showed that markets can have outsized and sharp reactions to changes in balance sheet policy even before they happen. the expected impact of balance sheet reductions on treasury yields and agency mbs oas reflects the fomc ’ s gradual and predictable approach to balance sheet normalization, but could also reflect additional factors. some argue that robust credit extension by the private sector given the strong economic environment helps to offset the yield impact from a declining balance sheet. furthermore, there are likely some spillover effects across fixed - income markets globally from asset purchase programs abroad that could affect u. s. term premia. the balance sheet in the long run for many years, the fomc has indicated its intention that the federal reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively, and that it will hold primarily treasury securities. 16 also, in the june 2017 addendum to the policy normalization principles and plans, the fomc noted that reducing the fed ’ s securities holdings will result in a declining supply of reserve balances, and that it in advance of each fomc meeting, the desk surveys primary dealers and active investment decision makers about economic and financial market topics to gain insight into their expectations. see survey of primary dealers and survey of market participants. see the fomc ’ s policy normalization principles and plans, september 16, 2014. anticipates reducing the quantity of reserve balances to a level “ appreciably