in line but just barely with the expectation that inflation will remain close to our 2 percent inflation goal over the medium - to - longer run. survey - based measures of inflation expectations also appear consistent with the fed ’ s inflation goal. in short, the labor market today is robust, and inflation is at or close to the fed ’ s 2 percent inflation goal. thus, the economy is as near as it has been in a decade to meeting both of the fed ’ s dual - mandate objectives, which suggests to me that monetary policy at this stage of the economic expansion should be aimed at sustaining growth and employment at levels consistent with keeping inflation at or close to the 2 percent rate consistent with price stability. by contrast, 2 / 4 bis central bankers'speeches until this year, the appropriate focus of policy had been to return employment and inflation to levels consistent with our dual - mandate objectives. with the economy now operating at or close to mandate - consistent levels for inflation and unemployment, the risks that monetary policy must balance are now more symmetric and less skewed to the downside. policy remains accommodative i supported the fomc ’ s decision last month to raise the target for the federal funds rate to a range of 2 to 2 - 1 / 4 percent. with the economy growing briskly, the labor market operating in the vicinity of full employment, and inflation running close to 2 percent, i saw our decision as another step in removing the extraordinary degree of accommodation put in place in the aftermath of the global financial crisis. however, even after our september decision, i believe u. s. monetary policy remains accommodative. the funds rate is just now for the first time in a decade above the fed ’ s inflation objective, but the inflation - adjusted real funds rate remains below the range of estimates for the longer - run neutral real rate, often referred to as r *, computed from the projections submitted by board members and the reserve bank presidents. this longer - run r *, like the natural rate of unemployment, is both unobserved and time varying and thus must be inferred as a signal extracted from noisy macro and financial data. that said, and notwithstanding the imprecision with which r * is estimated, it remains to me a relevant consideration as i assess the current stance and best path forward for policy. the reason for this is because, as milton friedman argued in his classic american economic association presidential address, a central bank that seeks to consistently keep

expressed concerns about the decline in the personal saving rate. aggregate personal saving, measured by the bureau of economic analysis, averaged about 1 percent of disposable income during the first three quarters of 2004, more than 6 percentage points lower than the average that has prevailed since the early 1960s. the saving rate, measured by the board ’ s flow of funds accounts is higher, at 5 percent of disposable income, though it, too, is significantly lower than its average level in the past. analysis by board staff using data from the scf indicate that households in the top income quintile can account for nearly all of the decline in the aggregate saving rate since 1989. given that these higher - income households have more financial resources to weather shocks, the significant decline in savings is less troublesome than if it had occurred in the lower part of the income distribution. this points out two different perspectives on household financial health. while analysts usually focus on the savings rate as a share of current income and funds flow, some argue that a more relevant measure of saving adequacy is the change in net worth. and in this regard, the picture of household saving looks more favorable than suggested by the saving rate. the ratio of net worth - to - disposable income has come down from its peak in 2000, but remains at a high level relative to the past few decades, because capital appreciation on household assets, such as equities and real estate, has office of federal housing enterprise oversight house price index. considerably outpaced income gains. this is a passive perspective on savings, though, where households rely on the markets to raise the value of their assets over time. but to create these assets, households need to consistently set aside some of their current earnings to invest for their future needs. while the experience of the past three years of exceptionally low interest rates and lower expected stock returns encouraged a rational consumer to spend and not save, as the markets return to more long - term trends, we should see consumers moderate their behavior as well. financial conditions of businesses the business sector is in good financial shape - a dramatic turnaround from the situation in 2001. firms have reduced leverage and restructured their liabilities, responding in part to investors ’ concerns arising from some high - profile unanticipated meltdowns in the early part of this decade. in addition, firms have significantly cut costs through dramatic gains in productivity, which has boosted profits. in my view, even with