, resource utilization rising, cost pressures increasing, and short - term interest rates still relatively low, the federal open market committee ( fomc ) over the course of 2005 continued the process of removing monetary policy accommodation, raising the federal funds rate 2 percentage points in eight increments of 25 basis points each. at its meeting on january 31 of this year, the fomc raised the federal funds rate another 1 / 4 percentage point, bringing its level to 4 - 1 / 2 percent. at that [UNK] monetary policymakers also discussed the economic outlook for the next two years. the central tendency of the forecasts of members of the board of governors and the presidents of federal reserve banks is for real gdp to increase about 3 - 1 / 2 percent in 2006 and 3 percent to 3 - 1 / 2 percent in 2007. the civilian unemployment rate is expected to finish both 2006 and 2007 at a level between 4 - 3 / 4 percent and 5 percent. inflation, as measured by the price index for personal consumption expenditures excluding food and energy, is predicted to be about 2 percent this year and 1 - 3 / 4 percent to 2 percent next year. while considerable uncertainty surrounds any economic forecast extending nearly two years, i am comfortable with these projections. in the announcement following the january 31 meeting, the federal reserve pointed to risks that could add to inflation pressures. among those risks is the possibility that, to an extent greater than we now anticipate, higher energy prices may pass through into the prices of non - energy goods and services or have a persistent effect on inflation expectations. another factor bearing on the inflation outlook is that the economy now appears to be operating at a relatively high level of resource utilization. gauging the economy's sustainable potential is difficult, and the federal reserve will keep a close eye on all the relevant evidence and be flexible in making those judgments. nevertheless, the risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately - - in the absence of countervailing monetary policy action - - to further upward pressure on inflation. in these circumstances, the fomc judged that some further firming of monetary policy may be necessary, an assessment with which i concur. not all of the risks to the economy concern inflation. for example, a number of indicators point to a slowing in the housing market. some cooling of the housing market is to be expected and would not be inconsistent with continued solid growth of overall economic activity.

all the money we spend daily is deposit money created by a bank. there is little likelihood that many customers will withdraw large amounts simultaneously. banks can therefore create far more deposits than they can pay out at the same time. 6 but a bank cannot extend loans and create deposits without limitations. first, it must assess the customer ’ s debt - servicing capacity, ie credit risk. second, the bank must assess the degree of liquidity risk associated with lending long and creating deposits that customers can withdraw at any time. third, it must comply with statutory rules. banks ’ willingness to assume some degree of liquidity risk is a public good. in its absence, we would have less access to long - term loans and money in the form of bank deposits. on the other hand, too much liquidity risk entails a risk of instability and crises like the one we experienced in 2008. banking regulation implicitly provides a trade - off between these considerations. the other main activity of banks is payment services, which are services we use virtually every day. today, most people in norway receive money as a bank deposit directly into their account. as long as there are payment solutions that give us cheap and simple access to money, the account is an efficient and safe wallet. chart : banks provide payment services but how is it that bank deposits can become money that we can use as payment? an important pre - condition is that there is an infrastructure to enable deposits to be efficiently transferred 2 / 7 bis central bankers'speeches between customers and banks. as the bankers ’ bank, norges bank creates the money banks use to pay each other, so - called central bank reserves, which are the banks ’ deposits at the central bank. transfers of customer deposits between banks can take place without frictions because a corresponding amount of central bank reserves are transferred between banks ’ own accounts at norges bank, where banks have a common and trusted means of payment and settlement system. this helps ensure that there is no difference between the money created by dnb and money created by nordea. the money is interchangeable. for us, it is all norwegian kroner. as such, banks play a key role in delivering services we want from the financial system, albeit subject to a framework designed by the norwegian authorities. the banking sector is more strictly regulated than most sectors of the economy. with the right to create money comes obligations. competition from new participants chart : competition from new participants many of the services banks offer can be provided by others