##nswered questions as i promised, i will now pose several questions about the new economy to this gathering. i can assure you that this will not be a multiple - choice test, and it will ultimately be up to your shareholders and the american people to grade all of our answers. first, what has been so special about the technological developments since 1995? how quickly have the innovations to computing and communications technology diffused throughout the economy? how much diffusion of the current technologies remains to be accomplished? second, what makes the internet unique in its potential to improve productivity, and is the potential greater than that of other recent technological developments? what are the potential benefits - and costs - of the adoption of the commercial and communication strategies required to fully use the internet? does the internet have the potential to continuously improve business processes, as some enthusiasts argue, and if it does, what conditions are required to achieve that? third, how have you used information technology or the internet to improve productivity or reduce costs in your own businesses? how far along are you in this process? how important is spending on research and development to the long - run competitive position of your own business and the pace of innovation in your industry? are new technologies emerging from r & d that have the realistic potential to increase productivity growth in the economy even further? fourth, do the methods used to value the so - called dot - coms differ from those used to value “ old economy ” companies, and should they differ? how should gross margins be considered in valuing dot - coms? do tools used to value direct - mail companies apply to dot - coms? given recent volatility in equity prices and the ipo market, are venture capital funds less forthcoming? will new ventures still emerge at the same pace in a period of equity market volatility? concluding remarks in conclusion, let me remind you that, while these are challenging times for monetary policymakers and financial market participants, the us economy is enjoying a period of unprecedented prosperity. technological developments associated with the information revolution are truly transforming the way we work and play. our job at the federal reserve is to do our utmost to produce a stable economic environment without inflation so that these trends can continue. i look forward to discussing these issues with you.

keep real interest rates below r * will eventually face rising inflation and inflation expectations, while a central bank that seeks to keep real interest rates above r * will eventually face falling inflation and inflation expectations. 3 my own and others'research suggests that the failure of the fed to respect this principle contributed to the great inflation of the 1970s, while the incorporation of this principle into fed policy in the 1990s and 2000s contributed to the achievement of stable and low inflation during and since those years. 4 so, even though estimates of r * are imprecise, i do not believe they should be ignored. instead, when thinking about monetary policy, i believe it is best not to ignore entirely an admittedly imprecise estimate of r * today, but instead to update that estimate as new data on inflation, inflation expectations, employment, growth, and productivity arrive. moreover, because monetary policy operates with a lag, and with inflation presently close to the 2 percent goal, it will be especially important to monitor inflation expectations closely using both surveys and financial market data to best calibrate the pace and destination for policy normalization. it will also be important to monitor both model - based and financial - market based estimates of expected future inflation - indexed real interest rates ( for example, 5 - year real rates 5 years forward ) suitably adjusted for term premium and liquidity effects as one indicator of longer - run r *. before the financial crisis, these 5 - year real rates 5 years forward averaged around 2 percent after a term premium and liquidity adjustment. since 2015, they have averaged about 0. 50 percent but recently have approached 0. 75 percent, also after a term and liquidity premium adjustment. given that real interest rates and economic growth tend to move together over the longer run, one possible source of these upward revisions in forward real rates could be that financial market participants may have become more optimistic about the growth potential of our economy. evidence also suggests that the term premium that investors require to hold longermaturity bonds has risen as well. the way forward if the data come in as i expect, i believe that some further gradual adjustment in the federal funds rate will be appropriate. as i mentioned earlier, i believe monetary policy today remains accommodative, and that, 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. raising rates too quickly could un