less liquid, and when financial leverage is layered on top of structural leverage. 2 these dynamics were evident during the financial crisis. before the crisis, market participants grew comfortable with borrowing collateralized by a variety of less - liquid assets, sometimes using structured investment vehicles ( sivs ), conduits, and other off - balance - sheet structures. directly or indirectly, market participants used short - term funding that needed to be renewed almost continually but lacked a formal liquidity backstop ( although, in some cases, such support was seen by market participants as implicit ). further, much of the financing – through repurchase agreements ( repos ), over - the - counter ( otc ) derivatives, and other mechanisms – was collateralized by securities that already embedded significant structural leverage. this layering of leverage had profound consequences when sentiment changed. lenders who had financed securities, either directly in the repo market or through structured vehicles, were suddenly no longer comfortable with the collateral and were unsure of their potential exposure to losses. given the uncertainties, the rational response went beyond raising haircuts or other means of tightening credit terms : banks simply stopped lending, typically by not “ rolling over, ” or renewing, short - term financing when trades matured. in addition, collateralized borrowing had taken on many transactional forms, including otc derivatives or securities financings, which were not always recognized as economically equivalent. given the extent of layering, and sometimes opacity of leverage, the result was a rapid and disorderly unwinding, over just weeks or months, of a very complicated system that had taken years to evolve. in january 2010, financial regulators issued an interagency advisory to remind financial institutions about supervisory expectations regarding sound practices for the management of interest rate risk. regulators noted that in an environment of historically low short - term interest rates, it is important for institutions to have robust processes for measuring and, where necessary, mitigating their exposure to potential increases in interest rates. see board of governors of the federal reserve system, division of banking supervision and regulation ( 2010 ), “ interagency advisory on interest rate risk, ” supervision and regulation letter sr 10 - 1 ( january 11 ). www. federalreserve. gov / boarddocs / srletters / sr1001. htm. structural leverage refers to design features of an instrument that produce large changes in valuation in response to small changes in risk factors. bis central bankers ’

that the committee approved last august. in our new framework, we acknowledge that policy decisions going forward will be based on the fomc ’ s estimates of “ shortfalls [ emphasis added ] of employment from its maximum level ” — not “ deviations. ” 5 this language means that going forward, a low unemployment rate, in and of itself, will not be sufficient to trigger a tightening of monetary policy absent any evidence from other indicators that inflation is at risk of moving above mandate - consistent levels. with regard to our price - stability mandate, while the new statement maintains our definition that the longer - run goal for inflation is 2 percent, it elevates the importance — and the the most recent version of the 2012 statement is available on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / files / fomc _ longerrungoals _ 201901. pdf. - 5challenge — of keeping inflation expectations well anchored at 2 percent in a world in which an effective - lower - bound constraint is, in downturns, binding on the federal funds rate. to this end, the new statement conveys the committee ’ s judgment that, in order to anchor expectations at the 2 percent level consistent with price stability, it will conduct policy to achieve inflation outcomes that keep long - run inflation expectations anchored at our 2 percent longer - run goal. as chair powell indicated in his jackson hole remarks, we think of our new framework as an evolution from “ flexible inflation targeting ” to “ flexible average inflation targeting. ” 6 while this new framework represents a robust evolution in our monetary policy strategy, this strategy is in service to the dual - mandate goals of monetary policy assigned to the federal reserve by the congress — maximum employment and price stability — that remain unchanged. 7 concluding remarks while our interest rate and balance sheet tools are providing powerful support to the economy and will continue to do so as the recovery progresses, it will take some time for economic activity and employment to return to levels that prevailed at the business cycle peak reached last february. we are committed to using our full range of tools to support the economy until the job is well and truly done to help ensure that the economic recovery will be as robust and rapid as possible. see jerome h. powell ( 2020 ), “ new economic challenges and the fed ’ s monetary policy review, ” speech delivered at “ navigating the decade ahead : implications for monetary policy, ” a symposium