stability. a major source of problems during the recent crisis was the excessive maturity transformation undertaken by financial firms. put simply, these firms were relying too much on short - term debt. one of the thrusts of regulatory reform has been to attack this problem – for example, via the constructs of the liquidity coverage ratio and the net stable funding ratio that are a part of basel iii. however, a complementary way to deal with the problem is to influence the underlying incentives for short - term debt issuance. and these incentives are in turn shaped by the structure of rates and term premiums in the market. one important distinction is that in the case of the clinton - era buybacks, bond prices were likely influenced not simply by the bond purchases themselves, but by the prospect of future surpluses over a longer horizon. this argument is made by krishnamurthy and vissing - jørgensen ( 2012 ). one natural reason why mbs may be less money - like than treasury securities is their exposure to prepayment risk. bis central bankers ’ speeches as i noted earlier, a natural response for any firm facing an unusually low term premium is to adjust its capital structure by issuing cheap long - term debt to replace its shorter - term debt. it is therefore not surprising that the average debt maturity of large nonfinancial firms has increased notably over the past few years. moreover, the same pattern shows up among large financial firms – they too have been significantly lengthening their average debt maturity. 20 the current cheapness of long - term debt contrasts with the pre - crisis configuration, where there was frequently a pronounced premium favoring issuers not at the long end of the yield curve, but at the very short end. in other words, the fact that the yield curve often tended to be steeply upwards sloping at the front end gave financial firms a strong incentive to issue overnight paper. the bottom line is that i suspect that lsaps have, by changing the structure of term premiums in the market, helped encourage an extension of debt maturity by both financial and nonfinancial firms. all else being equal, this development is a good thing from a financial stability perspective. 21 to conclude, i believe that our recently announced policy of mbs purchases, coupled with the change in our forward guidance, are strong positive steps. i am hopeful that these actions by the federal reserve will help to give economic growth a much needed boost. at the same time, i am keenly aware of

level of 4. 2 percent. 8 while employment gaps between certain demographic groups have widened a touch since 2022, they remain historically narrow. further, a welcome development as inflation has moderated is that real wage growth has picked up even as nominal wage growth has slowed. though wages are now growing similarly across demographic groups, the narrowing of the wage gap across demographic groups realized in 2021 and 2022 persists. see the december 2024 median forecast of fomc participants in the sep, which is available on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / fomccalendars. htm. - 9how do strong labor markets facilitate broad - based prosperity? looking back at long, noninflationary episodes like the pre - pandemic expansion raises the question of why strong labor markets have been especially beneficial for certain demographic groups. although the literature has not reached a definite conclusion to this question, researchers have pointed to several economic mechanisms that may help explain these patterns. in 1973, the economist arthur okun argued that “ high - pressure ” labor markets — such as those in 2019 and during the pandemic recovery — allowed workers to move up the job ladder, creating new opportunities for individuals on the margins of the labor market. 9, 10 further, he argued that when job openings are difficult to fill, employers relax hiring standards, creating new opportunities for individuals who otherwise might struggle to find employment. consistent with this argument, economic research shows that as the labor market strengthened from 2010 to 2014, employers reduced education and experience requirements in online job postings. 11 economic research also highlights the role of more productive job - worker matches as tight labor markets facilitate a reallocation of labor to better and more productive jobs. 12 on the participation side, the labor force participation rate tends to respond to business cycles with a significantly longer lag than the unemployment rate, for instance, due to the stickiness of decisions related to caregiving or educational responsibilities. this suggests that long expansions are especially important for drawing non - participants back into the labor market. 13 see okun ( 1973 ). while there is no official definition of a “ high - pressure ” labor market, the term usually refers to a period when the unemployment rate is below its natural rate — that is, below its long - run sustainable level. see modestino and others ( 2016 ). see akerlof, rose, and yellen