1998 financial markets stabilized and we did not see the continuing disruptions to intermediation and spending that concerned us after the initial market shock had taken place. and in the last year or so economic growth has strengthened and the possibility of destabilizing deflation receded. omitted from my list of examples of low - probability, high - impact events that the federal reserve has addressed with monetary policy are episodes in which a possible substantial deviation of key asset prices from fundamentals threatens future disruption when those prices correct. the reason for the omission is that i know of no such episodes in the past few decades. our monetary policy certainly takes into account the effects of asset prices on the likely course of the economy and prices. but we have not attempted to damp fluctuations in asset prices by tightening or easing policy more than the medium - term macroeconomic outlook implies. in concept, a significant deviation of important asset prices from fundamental values raises the risk of a future reversal that would add to economic volatility, representing a low - probability event that, like many others, could be given some weight in the stance of policy. but we have been deterred by a number of uncertainties about dealing with this possibility and a consequent lack of confidence that the benefits of policy action in these circumstances would outweigh the costs. among other things, we are uncertain ( a ) about any judgment that the level of a particular class of asset prices is moving far enough away from fundamentals to make a correction inevitable and disruptive ; ( b ) about the timing of a reversal of those prices, so that a step to truncate a movement, say by raising rates in response to a perception that the prices of some assets were becoming unsustainably high, does not increase economic instability by hitting the economy and asset prices just as the reversal occurs ; and ( c ) about the response of asset prices, possibly driven by self - fulfilling optimism for a time, to a change in rates. as a result of this last unknown, one has difficulty assessing whether a change in policy large enough to prevent asset - price disequilibrium would have a greater adverse effect over time on economic performance than would allowing asset prices to evolve. moreover, we have also recognized that much of the extra damage that rapidly changing asset prices may inflict occurs through weakening the financial system enough to cause a constriction in credit flows that restrains spending. this potential problem can be addressed, in part, through the

##ve. gov / monetarypolicy / files / fomc _ longerrungoals. pdf. - 6statement has been reaffirmed at the start of each subsequent year, including at the fomc ’ s meeting this past january with unanimous support from all 17 fomc participants. the statement indicates that the committee seeks to mitigate deviations of inflation from 2 percent and deviations of employment from assessments of its maximum level. in doing so, the fomc recognizes that these assessments of maximum employment are necessarily uncertain and subject to revision. according to the federal reserve act, the employment objective is on an equal footing with the inflation objective. as a practical matter, our current strategy shares many elements with the policy framework known in the research literature as “ flexible inflation targeting. ” 16 however, the fed ’ s mandate is much more explicit about the role of employment than that of most flexible inflation - targeting central banks, and our statement reflects this by stating that when the two sides of the mandate are in conflict, neither one takes precedent over the other. we believe this transparency about the balanced approach the fomc takes has served us well over the past decade when high unemployment called for extraordinary policies that entailed some risk of inflation. the review of our current framework is wide ranging, and we are not prejudging where it will take us, but events of the past decade highlight three broad questions. three questions the first question is, “ can the federal reserve best meet its statutory objectives with its existing monetary policy strategy, or should it consider strategies that aim to reverse past misses of the inflation objective? ” for a discussion of this terminology and references, see english, lopez - salido, and tetlow ( 2015 ) and clinton and others ( 2015 ). - 7under our current approach as well as that of most flexible inflation - targeting central banks around the world, the persistent shortfalls of inflation from 2 percent that many advanced economies have experienced over most of the past decade are treated as “ bygones. ” this means that policy today is not adjusted to offset past inflation shortfalls with future overshoots of the inflation target ( nor do persistent overshoots of inflation trigger policies that aim to undershoot the inflation target ). central banks are generally believed to have effective tools for preventing persistent inflation overshoots, but the elb on interest rates makes persistent undershoots more likely. persistent inflation shortfalls carry the risk that longer