, “ the role of expectations in changed inflation dynamics, ” finance and economics discussion series 2018 - 062 ( washington : board of governors of the federal reserve system, august ), https : / / doi. org / 10. 17016 / feds. 2018. 062. - 10 the operation of cyclical forces. 12 regardless, because inflation is ultimately a monetary phenomenon, the federal reserve has the capacity and the responsibility to ensure inflation expectations are firmly anchored at — and not below — our target. as i have argued in the past, the fact that inflation has been running somewhat below our longer - run goal of 2 percent may not be entirely due to labor market slack or to transitory shocks ; it also likely reflects some softening in inflation ’ s underlying trend. 13 first, estimates of underlying inflation based on statistical filters are lower than they were before the financial crisis and are currently below 2 percent. second, estimates of longer - run inflation expectations based on the university of michigan surveys of consumers and on inflation compensation from financial market pricing are also running lower than before the financial crisis. 14 our goal now is to get underlying trend inflation around our target on a sustained basis. what would this take? we can get some sense from statistical models. although there is no one widely agreed - upon method of measuring underlying inflation, one statistical approach that has received attention in recent years captures the idea that underlying inflation responds to the for a discussion of cyclical and acyclical inflation, see tim mahedy and adam shapiro ( 2017 ), “ what ’ s down with inflation? ” frbsf economic letter 2017 - 35 ( san francisco : federal reserve bank of san francisco, november ), https : / / www. frbsf. org / economic - research / files / el2017 - 35. pdf. for a specific discussion of the role of medical - care costs, see jeffrey clemens, joshua d. gottlieb, and adam hale shapiro ( 2016 ), “ medicare payment cuts continue to restrain inflation, ” frbsf economic letter 2016 - 15 ( san francisco : federal reserve bank of san francisco, may ), https : / / www. frbsf. org / economic - research / files / el2016 - 15. pdf. for a discussion of common global factors, see matteo ciccarelli and benoit mojon ( 2010 ), “ global inflation, ” review of economics and statistics, vol. 92 ( august ), pp. 52

on the ccyb would build an extra layer of resilience and signal restraint, helping to damp the rising vulnerability of the overall system. moreover, because the ccyb is explicitly countercyclical, it is intended to be cut if the outlook deteriorates, boosting the ability of banks to make loans when extending credit is most needed and providing a valuable signal about policymakers ’ intentions. this feature proved to be valuable in the united kingdom in the wake of the brexit referendum. see lael brainard ( 2018 ), “ assessing financial stability over the cycle, ” speech delivered at the peterson institute for international economics, washington, december 7, https : / / www. federalreserve. gov / newsevents / speech / brainard20181207a. htm. - 9if countercyclical tools and other regulatory safeguards are not adequate over the cycle, monetary policy will need to carry a greater burden in leaning against financial excesses. that would be unfortunate, because adding financial stability concerns to the burden of conventional monetary policy might undermine sustained achievement of our employment and inflation goals. because the financial cycle is today likely to be tempered less than in the past by material increases in interest rates as the economy expands, the appropriate level of bank capital for today ’ s conditions is unlikely to be the same as in past business cycles : because interest rates likely will do less than in past cycles, regulatory buffers will need to do more. as a consequence, now is a bad time to be weakening the core resilience of our largest banking institutions or to be weakening oversight over the nonbank financial system. instead, we should be safeguarding the capital and liquidity buffers of banks at the center of the system, carefully monitoring risks in the nonbank sector, and making good use of the countercyclical tool that we have. achieving our inflation objective on a sustained basis finally, let us turn to the apparent softness in underlying trend inflation. one hypothesis for the flat phillips curve is that central banks have been so effective in anchoring inflation expectations that tightening resource utilization is no longer transmitted to price inflation. 11 another possibility is that structural factors such as administrative changes to health care costs, globalization, or technological - enabled disruption have been dominant in recent years, masking for evidence that inflation expectations may have played a role in flattening the phillips curve, see damjan pfajfar and john m. roberts ( 2018 )