levels, inflation rates have persistently been below central banks ’ goals. the fact that inflation has been running below target in most advanced countries suggests that this challenge is not due to factors specific to a single country. instead, there are more systemic factors at play, with the root cause being a combination of low neutral interest rates and the lower bound on interest rates. investors are increasingly viewing these low inflation readings not as an aberration, but rather a new normal. this is evidenced by a broad - based decline in market - based measures of longerrun inflation expectations since the mid - 2000s, with the uk providing the exception, as shown in table 1. this downward slippage of longer - run inflation expectations, if it persists, implies that in the future central banks start further from their inflation goals and have even less room to maneuver, making the problem of low r - star and the zlb even more difficult. conclusion the zlb has been a topic of study for nearly two decades. but recent history and the outlook for the longer - term future, make it more relevant than ever. low inflation expectations, very low r - star, and slower growth all point to a challenging world where policymakers need to make the best use of the tools at their disposal to achieve their goals of strong economies and price stability. the key lessons from this research hold today and in the future. first, take swift action when faced with adverse economic conditions. second, keep interest rates lower for longer. and third, adapt monetary policy strategies to succeed in the context of low r - star and the zlb. these actions, taken together, should vaccinate the economy and protect it from the more insidious disease of too low inflation. thank you. 1 john c. williams, the research - policy nexus : zlb, jmcb and fomc, remarks at the conference celebrating the 50th anniversary of the journal of money, credit and banking, new york ( may 31, 2019 ). 2 john c. williams, the economic outlook : the ‘ new normal ’ is now, remarks at the economic club of new york, new york ( march 6, 2019 ). 3 david reifschneider and john c. williams, three lessons for monetary policy in a low - inflation era, journal of money, credit and banking, volume 32, issue 4, pp. 936 – 66, november 2000. 4 board of governors of the federal reserve system, fomc briefing.

given the uncertainties around economic forecasts that far into the future, it would be highly desirable for the fiscal authorities to put in place a medium - term program of fiscal consolidation now, while market conditions are benign. at the same time, i think we must be careful and not focus exclusively on the imperative of fiscal consolidation. that is because fiscal policy adjustments have important implications for the 2011 remittance figure is a preliminary unaudited estimate. bis central bankers ’ speeches the level and composition of economic activity more broadly – both here and abroad. if we must undertake fiscal consolidation – and over time we must – then we need to be cognizant that this adjustment will need to be accompanied by other offsetting changes in the composition of economic activity in our and the global economy. 2 one way of illustrating these interrelationships is to use the following accounting identity, which imposes an adding up constraint on the overall economy : if you define private - sector net saving as the private balance and public sector net saving as the public balance, then : private balance + public balance = current account balance. at the outset of the financial crisis, the private balance, which was negative, swung sharply into surplus, and this was largely accommodated by a decrease in the public balance – in other words, an increase in the government deficit. recently, 3 this accounting identity looked roughly like this : 6. 5 % of gdp private balance + ( – 9. 5 % of gdp ) public balance = – 3 % of gdp current account balance realistically, the public balance 4 needs to be reduced to about – 3 percent of gdp over the next five years or so for the ratio of federal debt held by the public - to - gdp to stabilize around 75 percent to 80 percent of gdp. one might reasonably do more, but this just strikes me as the minimum adjustment that would be prudent and sustainable. this requires a large change from where we are today. for the accounting identity to continue to hold, which it must, there needs to be sizable shifts in the private balance and / or the current account balance. this is not a policy choice – it is basic math – but policy choices can help ensure that the adjustments take place in a way that is supportive of economic activity. the private balance can be further divided into two pieces – the household balance and the business balance. currently, for the united states, the household balance is about 2. 5 percent of gdp and the business balance is about 4 percent