that high and persistent inflation undermines public confidence in the economy and in the management of economic policy generally, with potentially adverse effects on risk - taking, investment, and other productive activities that are sensitive to the public's assessments of the prospects for future economic stability. in the long term, low inflation promotes growth, efficiency, and stability – which, all else being equal, support maximum sustainable employment, the other leg of the mandate given to the federal reserve by the congress. admittedly, measuring the long - term relationship between growth or productivity and inflation is difficult. for example, it may be that low inflation has accompanied good economic performance in part because countries that maintain low inflation tend to pursue other sound economic policies as well. still, i think we can agree that, at a minimum, the opposite proposition – that inflationary policies promote employment growth in the long run – has been entirely discredited and, indeed, that policies based on this proposition have led to very bad outcomes whenever they have been applied. inflations expectations – conceptual frameworks undoubtedly, the state of inflation expectations greatly influences actual inflation and thus the central bank's ability to achieve price stability. but what do we mean, precisely, by " the state of inflation expectations "? how should we measure inflation expectations, and how should we use that information for forecasting and controlling inflation? i certainly do not have complete answers to those questions, but i believe that they are of great practical importance. i hope my remarks here will stimulate some of you to work on these issues. what is the right conceptual framework for thinking about inflation expectations in the current context? the traditional rational - expectations model of inflation and inflation expectations has been a useful workhorse for thinking about issues of credibility and institutional design, but, to my mind, it is less helpful for thinking about economies in which ( 1 ) the structure of the economy is constantly evolving in ways that are imperfectly understood by both the public and policymakers and ( 2 ) the policymakers'objective function is not fully known by private agents. in particular, together with the assumption that the central bank's objective function is fixed and known to the public, the traditional rational - expectations approach implies that the public has firm knowledge of the long - run equilibrium inflation rate ; consequently, their longrun inflation expectations do not vary over time in response to new information. but in fact, as i will discuss in more detail later, long - run inflation expectations do vary over time. that is,

works more efficiently when more information about it is publicly available. indeed, the data have been used to identify credit demand that might otherwise have been overlooked. the conclusions drawn from the data have also encouraged the establishment of partnerships between lenders and community organizations to meet credit needs. the other assumption is that disclosure of data improves compliance with, and enforcement of, fair lending and consumer protection laws. as you know, the hmda data are the first reference point for fair lending examinations conducted by the federal reserve and the other banking regulators. the data help to identify potential fair lending issues in the institutions regulated by the federal reserve and other supervisory agencies. the public disclosure of price information - - in the form of spreads between the annual percentage rate on a loan and the rate on treasury securities of comparable maturity - - is designed to improve market efficiency and regulatory compliance. even with the addition of the price data, however, hmda data alone are not sufficient to prove discrimination. but new data will allow examination resources to be deployed more strategically by allowing supervisory agencies to determine, in advance, which lenders and higher - priced loan products may require more scrutiny. the new disclosure requirements will ensure that, as the marketplace develops and changes, interested parties will be able to conduct more efficient fair lending reviews. just as the release of data about race and sex helped lenders to focus on the underserved markets identified by the data, so will the new pricing data help them focus on those people and geographic areas that may be underserved. over the last decade, lenders made great strides in improving their lending policies and developing strong compliance - management and oversight programs. it is hard to argue that this improvement was not, in large measure, a response to the 1989 release of data about race and sex. credit scoring systems and innovative programs such as second reviews of denied loans became industry standards in an effort to serve these underserved markets better. the new data provide a similar opportunity to improve the efficiency of the mortgage market. a published board staff analysis of the 2004 data finds substantial disparities among racial and ethnic 2 / 4 groups in the incidence of receiving higher - priced loans. those disparities may narrow when information about credit scores, loan - to - value ratios, and other credit - related factors is considered, but it is not clear that taking into account those other factors will erase the disparities. one cause of the disparities worthy of note is the finding that blacks and hispanics are much more