’ speeches normal rate of unemployment is between 5. 2 and 6. 0 percent. the statement noted that these statutory objectives are generally complementary, but when they are not, the committee will take a balanced approach in its efforts to return both inflation and employment to their desired levels. fiscal policy challenges in the remainder of my remarks, i would like to briefly discuss the fiscal challenges facing your committee and the country. the federal budget deficit widened appreciably with the onset of the recent recession, and it has averaged around 9 percent of gross domestic product ( gdp ) over the past three fiscal years. this exceptional increase in the deficit has mostly reflected the automatic cyclical response of revenues and spending to a weak economy as well as the fiscal actions taken to ease the recession and aid the recovery. as the economy continues to expand and stimulus policies are phased out, the budget deficit should narrow over the next few years. unfortunately, even after economic conditions have returned to normal, the nation will still face a sizable structural budget gap if current budget policies continue. using information from the recent budget outlook by the congressional budget office, one can construct a projection for the federal deficit assuming that most expiring tax provisions are extended and that medicare ’ s physician payment rates are held at their current level. under these assumptions, the budget deficit would be more than 4 percent of gdp in fiscal year 2017, assuming that the economy is then close to full employment. 2 of even greater concern is that longer - run projections, based on plausible assumptions about the evolution of the economy and budget under current policies, show the structural budget gap increasing significantly further over time and the ratio of outstanding federal debt to gdp rising rapidly. this dynamic is clearly unsustainable. these structural fiscal imbalances did not emerge overnight. to a significant extent, they are the result of an aging population and, especially, fast - rising health - care costs, both of which have been predicted for decades. notably, the congressional budget office projects that net federal outlays for health - care entitlements – which were about 5 percent of gdp in fiscal 2011 – could rise to more than 9 percent of gdp by 2035. 3 although we have been warned about such developments for many years, the time when projections become reality is coming closer. having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences. over the longer term, the current trajectory of federal debt threatens to crowd out private capital formation and thus

back - office systems to integrate the more complex aspects of electronic check receipt into their core banking and risk - management systems. we are beginning to see evidence that depository institutions are starting this reengineering process. generally, check 21 volumes at the reserve banks are increasing rapidly, reflecting the efficiency gains that will inexorably lead to the electronic processing of almost all checks in the not - toodistant future. the greater use of electronic payments has not been uniform across all market segments. a closer look at payment trends reveals that consumers and businesses may have different perspectives on electronic payments. businesses have been encouraging consumers to use electronic payment alternatives and have been the driving force behind the conversion of consumer checks into ach payments. in turn, consumers, recognizing the convenience of electronic payments, have allowed their checks to be converted into ach payments and have initiated an increasing number of their payments electronically. businesses, on the other hand, have been more cautious about having their own checks converted into ach payments or switching from paper to electronics. there are some obvious reasons for this behavior. first, businesses often have cash - management processes or legacy accounting systems in place that rely on paper checks. a payments conference hosted by the federal reserve in 2003 found that businesses face organizational and technical challenges in moving to electronics. for example, businesses may need to make significant investments in their back - office payment, billing, and accounting systems before they can use electronic payments more frequently. in addition, many businesses are reluctant, from a control perspective, to allow others to debit funds electronically from their accounts. if businesses can overcome these challenges, they should be able to make and receive a much larger portion of their payments electronically. at the same time, the financial incentives for businesses to make these changes will increase as the relative costs of electronic versus paper payments continue to shift in favor of electronic payments. challenges of payment system innovation in addition to low costs, successful innovations must satisfy at least three criteria : meet end - user needs, address network externalities, and provide sufficient controls over risks. to be successful, new payment instruments, and changes to existing instruments, must ultimately be more convenient and cost - effective for end users. consumers and businesses are not likely to modify their payment behavior unless they are shown how they will benefit from a change. a federal reserve board staff study conducted in 2002, “ the future of retail electronic payments systems, ” highlighted this observation. the study was based on interviews with payment system innovators,