having increased substantially in recent quarters, cost and price inflation should remain quite subdued. in the short run, headline inflation will be driven importantly by movements in energy and food prices ; judging from the structure of futures prices, markets are not expecting a further sharp rise in those prices, and thus headline inflation should retreat toward core inflation. inflation outside of the food and energy sectors has been declining slowly, held up by relatively stable inflation expectations. some further slowing is possible if the economic rebound is as gradual as i think it is likely to be. as i have already noted, keeping inflation expectations anchored will be critical for achieving our objectives for prices and output. the fomc has recently reiterated its expectation that the considerable remaining slack in labor and product markets and subdued trends in inflation and inflation expectations are likely to warrant exceptionally low levels of the federal funds rate for an extended period. monetary policy future the federal reserve will face a number of challenges in the conduct of monetary policy in the period ahead. i will discuss two of them : further exit from our extraordinary measures, including the large volume of reserves, our outsized portfolio of mbs, agency, and treasury securities, and our near - zero policy interest rate ; and evaluating any lessons from the recent experience for the conduct of policy – in particular, the potential role of financial stability and asset prices in monetary policy formulation. exit. i ’ m not going to discuss the technical aspects of an exit from our extraordinary measures ; the federal reserve has kept the public apprised of the development of our exit tools, and the appropriate use and sequencing of these tools is under active discussion by the fomc. but i do want to make some general strategic points. first, we have no shortage of tools for firming the stance of policy, and we will be able to unwind our actions when and as appropriate. because we can now pay interest on excess reserves, we can raise short - term interest rates even with an extraordinarily large volume of reserves in the banking system. increasing the rate we offer to banks on deposits at the federal reserve will put upward pressure on all short - term interest rates. in addition, we are developing and testing techniques for draining large volumes of reserves through reverse repurchase agreements and through term deposits at the federal reserve. and we can sell portions of our holdings of mbs, agency debt, and treasury securities if we determine that doing so is an appropriate approach to tightening financial conditions when the time comes. second, the fiscal

a similar situation in the future. the brrd requires all banks and mortgage banks to prepare and update recovery plans and also requires the authorities to prepare resolution plans. these plans are the point of departure for the crisis management in the institutions and authorities. besides these two requirements, the brrd includes another key element : it lays down a framework for the authorities'management of a failing institution or an institution that is likely to fail. there are rules stating who is to bear the losses. institutions must observe a minimum requirement for own funds and eligible liabilities. this requirement is referred to as the mrel. the purpose of the mrel is to ensure that it is possible to resolve the individual firm in a crisis. the bail - in tool is of particular significance in this respect. i will get back to that. the mrel has two components : a loss - absorption amount and a recapitalisation amount. the loss - absorption amount corresponds to the losses the institution can be expected to have to absorb. the recapitalisation amount is to ensure that the chosen resolution strategy can be implemented. if the group is to continue as a viable business after having been distressed, it must be possible to recapitalise it at a level whereby it page 4 of 8 meets the capital requirements and enjoys sufficient trust in the market. by the way, that is the resolution strategy for the systemically important financial institutions in denmark. so we are no longer in a situation where we either save them all or do not save any. the brrd has introduced a new layer in the creditor hierarchy. this is non - preferred senior debt, which can be used for loss absorption and covers losses before senior unsecured creditors are affected. the price of this new type of debt is a sensitive indicator of the soundness of a bank. in that way, there is no risk that taxpayers, rather than investors and creditors, will bear the costs of handling a failing institution. the idea is that losses should be borne by those who incurred the risks and those who get the prospect of profit. that is known as bail - in. bail - in helps to ensure that the institutions have an incentive to run their businesses prudently and that investors and creditors monitor the activities of the institutions in order to prevent excessive risk - taking. the brrd is the most significant regulatory initiative in the financial area in europe in recent times. we now have a set of rules that reduces the risk that institutions will suffer serious financial problems,