subsequently, high - tech investment dropped at a double - digit rate in 2001 and fell further in 2002. this sharp decline, combined with the high depreciation rates on these types of goods, severely curtailed growth of the capital stock, and any overhang seems likely to have been eliminated relatively quickly. however, desired or optimal capital stocks are notoriously difficult to specify and measure, and hence so are overhangs, even several years after the episode. consequently, we cannot definitively rule out the possibility that the excess capital built up during the late 1990s is restraining investment to some extent today. another possibility is that business investment has been held down in recent years because relative prices of capital goods are no longer falling at the same pace at which they declined in the late 1990s. at least some of the deceleration may reflect a slowing pace of technological improvement - - that is, less - rapid downward shifts in the supply curve of capital goods. however, to the extent that these price changes are well measured and our econometric models are well specified, the implications of slower price declines should already be captured by our models. in addition, the effects of less rapidly falling prices on the growth rate of the user cost of capital appears to have been substantially offset over much of this period by declines in real interest rates. another explanation that received attention in the early years of this decade is that businesses were unusually cautious after the most recent recession in expanding their productive capacity. both hiring and capital investment lagged the usual recovery pace. one possible source of this caution was said to be questions about the strength and sustainability of the recovery, accentuated by concerns about terrorism and other geopolitical uncertainties. many periods of recovery have been accompanied by concerns about economic growth and political turmoil. but surveys suggest that managers did experience a prolonged sense of gloom, with measures of sentiment dropping to low levels and staying that way for a year or two beyond the business cycle trough. however, the economy has been expanding at an above - trend pace for about two years now, and the durability of the recovery should no longer be an issue. indeed, most surveys of business confidence and capital spending plans have reached, and in some cases exceeded, the levels of the late 1990s. still another possibility is that conditions created by corporate governance scandals and the regulatory response to those events led firms to hold back on capital spending. the scandals and the market's reaction were said to have contributed to a more conservative attitude toward risk taking

an increase in the target range for the federal funds rate on a meeting - by - meeting basis. before then, the committee will change its forward guidance. however, it is important to emphasize that a modification of the forward guidance should not bis central bankers ’ speeches be read as indicating that the committee will necessarily increase the target range in a couple of meetings. instead the modification should be understood as reflecting the committee ’ s judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting. provided that labor market conditions continue to improve and further improvement is expected, the committee anticipates that it will be appropriate to raise the target range for the federal funds rate when, on the basis of incoming data, the committee is reasonably confident that inflation will move back over the medium term toward our 2 percent objective. it continues to be the fomc ’ s assessment that even after employment and inflation are near levels consistent with our dual mandate, economic conditions may, for some time, warrant keeping the federal funds rate below levels the committee views as normal in the longer run. it is possible, for example, that it may be necessary for the federal funds rate to run temporarily below its normal longer - run level because the residual effects of the financial crisis may continue to weigh on economic activity. as such factors continue to dissipate, we would expect the federal funds rate to move toward its longer - run normal level. in response to unforeseen developments, the committee will adjust the target range for the federal funds rate to best promote the achievement of maximum employment and 2 percent inflation. policy normalization let me now turn to the mechanics of how we intend to normalize the stance and conduct of monetary policy when a decision is eventually made to raise the target range for the federal funds rate. last september, the fomc issued its statement on policy normalization principles and plans. this statement provides information about the committee ’ s likely approach to raising short - term interest rates and reducing the federal reserve ’ s securities holdings. as is always the case in setting policy, the committee will determine the timing and pace of policy normalization so as to promote its statutory mandate to foster maximum employment and price stability. the fomc intends to adjust the stance of monetary policy during normalization primarily by changing its target range for the federal funds rate and not by actively managing the federal reserve ’ s balance sheet. the committee is confident that it