of 2 percent on the pce measure. because monetary policy works with a time lag, we base policy not just on where the economy is today but where we expect it to be in the future. to do this, we make economic forecasts, based on data and insights from a broad range of economic models. we also take into account the balance of risks around our base case outlook. looking ahead, in the absence of further monetary easing, i concluded that growth would remain too subdued over the next several years to make big inroads into the spare capacity that remains from the great recession. as a result, unemployment would remain unacceptably high, with economic risks skewed to the downside. meanwhile, with substantial slack in labor markets and inflation expectations stable, inflation was likely to remain a bit below our 2 per cent longer - run objective. in this situation, i concluded that our policy framework means that further monetary policy easing was appropriate provided that the benefits of using the tools available outweighed the costs. in my judgment, this standard has been satisfied here. i am confident that the costs are manageable, based in part on the experience we have of using the tools these past four years and that the benefits substantially exceed the costs, recognizing, of course, that our actions are not so powerful that they will instantly transform the economic outlook. so how do our actions support economic activity? buying assets and extending interest rate guidance puts downward pressure on longer - term interest rates, so they are lower than they would otherwise be for any given economic outlook. this supports the price of assets such as equities and homes. buying mortgage - backed securities has the additional effect of bis central bankers ’ speeches narrowing the interest rate spread between these assets and treasuries, which further reduces mortgage rates. moreover, to the extent that our actions are seen as supporting the recovery and providing some insurance against adverse shocks, confidence in the mediumterm economic outlook should also increase, making businesses and households more willing to invest, hire and spend. if we are successful, long - term treasury yields could actually rise as confidence in a sustainable recovery increases. at the same time, the expected returns on private assets should rise and risk premia decline. this matters because such shifts would provide support to the economic recovery. now it is true that some of the channels through which monetary policy affects the economy may be partially impaired at the moment. for example, because of ongoing restrictions in the supply of mortgage

policy ’ s room for manoeuvre would be unimpaired. in the most recent financial and economic crisis, fiscal policy in switzerland has primarily relied on the effects of automatic stabilisers, and has been sparing in its use of discretionary stabilisation measures. nevertheless, in view of the severity of the crisis, the federal council initiated targeted discretionary measures, in line with the debt brake requirements. however, as mentioned, the debt brake also allows for exceptions in certain unusual circumstances. this exceptions rule made it possible to provide ubs with temporary support in 2008, without jeopardising the confederation ’ s ability to fulfil its normal mandate. 12 there is another reason for restraint in discretionary fiscal policy. the impact of a government economic stimulus programme in a small open economy such as switzerland is slight. the high proportion of imports means that much of the government spending dissipates abroad. it has been empirically demonstrated that the fiscal multiplier in small open economies is zero or even negative. 13 the impact is further reduced if the shock does not originate in the domestic economy, but from outside – as was the case in the most recent crisis. the crisis has confirmed the limits of discretionary fiscal policy stabilisation. for example, the measures adopted by the confederation in 2009 and 2010 could not be implemented fully and in a targeted way. 14 swiss monetary policy has also made an important contribution to economic stability. it is also subject to binding rules. for example, the requirement to ensure price stability is enshrined in the national bank act and is defined in the snb ’ s monetary policy strategy, which has been in force since 2000 ( cf. chart 8 ). 15 the snb equates price stability with a rise in the national consumer price index of less than 2 % a year. moreover, the snb ’ s independence is enshrined in the federal constitution. this requires it to operate without political pressure. as a counterweight to this independence, the snb has a duty of accountability ; it must report regularly to the government and the general public on monetary policy matters. thus, monetary policy is also equipped with good rules, and this is reflected in a high degree of stability. by international standards, switzerland has very low inflation rates and low interest rates. during the most recent crisis, the monetary policy authorities cut interest rates sharply and rapidly, and expanded the supply of liquidity. in response to the strong and