aware of them. we have moved a long way in this direction, even in the past 18 months. the fomc's record over the past 25 years suggests that the state of monetary policy and the state of the fed is strong. the challenge in thinking about what's next in any further evolution in our regime is about how to ensure that u. s. long - term inflation expectations remain stable at a level close to reasonable definitions of price stability, while retaining the flexibility to act wisely, but with speed and force and creativity in response to changing circumstances. thank you.

they can be sustained for a time, but not indefinitely. they could be diffused gradually and smoothly. but the transitions to a more sustainable equilibrium could also bring a risk of greater volatility in asset prices, less stability in macroeconomic outcomes, and more uncertainty. this could mean a less benign future environment for u. s. monetary policy. the potential uncertainties posed by these challenges may be more troubling because of confidence engendered by the stability and resilience of the u. s. economy over the past decade. we are in the midst of an unusual dynamic in financial markets, in which low realized volatility in macroeconomic outcomes, low realized credit losses, greater confidence in the near term path of monetary policy, low uncertainty about future inflation and interest rates, rapid changes in the nature of financial intermediation ( role of hedge funds and the change in how credit risk is bought and managed ), and a large increase in the share of global savings that is willing to move across borders, have worked together to bring risk premia down across many asset prices. there is no reliable analytical framework one can use to determine whether we are experiencing an unwelcome or unjustified decline in expected volatility, or whether investors are giving too much weight to the relative stability of the recent past and too little to the uncertainty posed by the challenges ahead. and analysts can point to good fundamental reasons and some plausible theories to support this collective judgment of market participants about low future risk and volatility. but there is much we do not understand about how these transitions ahead will unfold - in fiscal positions, the u. s. external imbalance, and in the exchange rate system and portfolio preferences. the recognition that things that are not sustainable will eventually come to an end does not give us much of a guide to whether the transition will be calm or exciting. these dimensions of the broader context in which we will be making monetary policy in the years ahead put a very important premium on keeping u. s. monetary policy as close to the frontier of credibility as possible. and this suggests we need to continue to examine the case for a measured further evolution in the u. s. monetary policy framework - evolution in the direction of finding ways to provide more clarity about our long term inflation objective, about the underlying forces shaping the federal open market committee's forecast, the dimensions of uncertainty that surround that forecast, and the likely implications for monetary policy, to the extent we are