great deal to like about this outlook. but we know that things often turn out to be quite different from even the most careful forecasts. for this reason, sound policymaking is as much about managing risks as it is about responding to the baseline forecast. our gradual pace of raising interest rates has been an exercise in balancing risks. we know that moving too fast would risk shortening the expansion. we also know that moving too slowly - - keeping interest rates too low for too long - - could risk other distortions in the form of higher inflation or destabilizing financial imbalances. our path of gradual increases has been designed to balance these two risks, both of which we must take seriously. we also know that the economic effects of our gradual rate increases are uncertain, and may take a year or more to be fully realized. while fomc participants ’ projections are based on our best assessments of the outlook, there is no preset policy path. we will be paying very close attention to what incoming economic and financial data are telling us. as always, our decisions on monetary policy will be designed to keep the economy on track in light of the changing outlook for jobs and inflation. under the dual mandate, jobs and inflation are the fed ’ s meat and potatoes. in the rest of my comments, i will focus on financial stability - - a topic that has always been on the menu, but that, since the crisis, has become a more integral part of the meal. - 3historical perspective on financial stability the term “ financial stability ” has a particular meaning in this context. a stable financial system is one that continues to function effectively even in severely adverse conditions. a stable system meets the borrowing and investment needs of households and businesses despite economic turbulence. an unstable system, in contrast, may amplify turbulence and prolong economic hardship in the face of stress by failing to provide these essential services when they are needed most. for economic club of new york trivia buffs, i will note that the second ever presentation to this club by a federal reserve official was about this very topic. the date was march 18, 1929. weeks before, the fed had issued a public statement of concern over stock market speculation, and had provided guidance frowning on bank funding of such speculation. william harding, a former fed chair and then president of the federal reserve bank of boston, defended the fed ’ s actions in his talk. he argued that, while the fed should not act as the

11 instead, we focus is on the extent to which an asset ’ s price is high or low relative to conventional benchmarks based on expected payoffs and current economic conditions. historically, when asset prices soar far above standard benchmarks, sharp declines follow with some regularity, and those declines may bring economic misery reaching far beyond investors directly involved in the speculative boom. we therefore pay close attention when valuations get to the extreme ends of what we have seen in history. looking across the landscape of major asset classes, we see some classes for which valuations seem high relative to history. for example, even after standard adjustments for economic conditions, valuations on riskier forms of corporate debt and commercial properties are in the upper ends of their post - crisis distributions, although they are short of the levels they hit in the pre - crisis credit boom. we see no major asset class, however, where valuations appear far in excess of standard benchmarks as some did, for example, in the late 1990s dot - com boom or the pre - crisis credit boom. the asset class that gets the most attention day - to - day is, of course, the stock market. today, equity market prices are broadly consistent with historical benchmarks such as forward price - to - earnings ratios ( see figure 8 ). it is important to distinguish between market volatility and events that threaten financial stability. large, sustained analysts differ over how to define the term “ bubble, ” and debate continues about the degree to which economic fundamentals might explain even the most famous apparent bubble cases from history. on the topic of tulip mania, for example, see peter m. garber ( 1989 ), “ tulipmania, ” journal of political economy, vol. 97 ( june ), pp. 535 - 60. ” - 12 declines in equity prices can put downward pressure on spending and confidence. from the financial stability perspective, however, today we do not see dangerous excesses in the stock market. monitoring likely triggers for financial distress i mentioned the distinction between vulnerabilities and shocks, or triggers. in addition to monitoring vulnerabilities under our four - part framework, we also consult a broad range of contacts regarding sources of risk that might trigger distress at any given time. for example, discussions with contacts currently point to risks emanating from the normalization of monetary policy in the united states and elsewhere, the unsettled state of trade negotiations, brexit negotiations, budget discussions