like to wrap up with a brief discussion of some of the other decision points we will encounter as we continue the process of normalizing our balance sheet. in particular, what does the committee judge to be normal in regard to the type and duration of assets that we will hold? on composition, in line with our previously announced normalization principles, i favor a return to a balance sheet with all treasury securities, allowing our mortgage - backed securities ( mbs ) holdings to run to zero. in those principles, we also state that while we do not expect sales of mbs as part of the normalization process, later we would be open to limited sales to reduce or eliminate residual holdings of mbs. in regard to duration, moving to shorten the duration of our 2 / 3 bis central bankers'speeches holdings could increase the fed's ability to affect long - term interest rates if the need arose. however, it might be preferable to have the composition of our treasury holdings roughly match the maturity composition of outstanding treasury securities, minimizing any market distortions that could arise from our holdings. over the course of our upcoming meetings, i look forward to what promises to be an interesting discussion on these issues with my colleagues. finally, in assessing our balance sheet policy, it is important to point out that the fed remains entirely focused on meeting its statutory dual - mandate objectives of maximum employment and price stability. the normalization of the balance sheet is not a competing goal. if ever it appears that our plans for the balance sheet are running counter to the achievement of our dual - mandate objectives, we would quickly reassess our approach to the balance sheet. 1 these remarks represent my own views, which do not necessarily represent those of the federal reserve board or the federal open market committee. 2 for more information, see the committee ’ s statement regarding monetary policy implementation and balance sheet normalization, which is available on the www. federalreserve. gov / newsevents / pressreleases / monetary20190130c. htm. board ’ s website at 3 the committee ’ s policy normalization principles and plans were adopted on september 16, 2014, and can be found on the board ’ s website at www. federalreserve. gov / monetarypolicy / files / fomc _ policynormalization. pdf. the fomc adopted addenda to the policy normalization principles and plans on march 18, 2015 ( pdf ), and

lael brainard : understanding the disconnect between employment and inflation with a low neutral rate speech by ms lael brainard, member of the board of governors of the federal reserve system, at the economic club of new york new york city, 5 september 2017. * * * overall, the u. s. economy remains on solid footing, against the backdrop of the first synchronized global economic growth we have seen in many years and accommodative financial conditions. this benign outlook is clouded somewhat by uncertainty about government funding and the fiscal outlook, and geostrategic risk has risen. while the heartbreaking human toll exacted by hurricane harvey is already all too clear, it will take some time to assess the macroeconomic impact. the labor market continues to bring more americans off the sidelines and into productive employment, which is a very welcome development. nonetheless, there is a notable disconnect between signs that the economy is in the neighborhood of full employment and a string of lowerthan - projected inflation readings, especially since inflation has come in stubbornly below target for five years. with normalization of the federal funds rate under way and the start of gradual balance sheet normalization widely anticipated, i will want to take some time to assess the path of the federal funds rate that will best support a sustainable move in inflation to our 2 percent goal. 1 sustainably achieving our inflation objective is especially important, given the apparent persistently low level of the neutral rate and the resulting limited room for maneuver above the effective lower bound. let me start by reviewing the economic outlook. there has been a noteworthy pickup in business investment this year compared with last year. investment in the equipment and intellectual property category has risen at an annual rate of 6 percent so far this year after remaining roughly flat last year. the latest data on orders and shipments of capital equipment suggest that solid growth will likely continue in the second half of the year. in addition, oil drilling had rebounded this year after dropping sharply last year, although hurricane harvey creates uncertainty about drilling in coming months. while lackluster consumer spending was one of the key reasons for the weak increase in first - quarter gross domestic product ( gdp ), growth in personal consumption expenditures ( pce ) bounced back strongly in the second quarter, and recent readings on retail sales suggest another solid increase in consumer spending this quarter. of course, the likely economic effects of hurricane harvey raise uncertainties about the economic outlook for the remainder of the year. based on past experience