of the economy heavily exposed to international trade. monetary policy has played a key role in achieving these outcomes through deferring liftoff relative to what was expected a little over a year ago. the october 2015 fomc statement indicated that it may be appropriate to raise the target range for the federal funds rate at the next meeting in december, though the outcome will depend on the committee ’ s assessment of the progress – realized and expected – that has been made toward meeting our goals of maximum employment and price stability. 10 of course, as policymakers, we must always be vigilant to events unfolding differently than we expect, and we must be ready to react accordingly. references board of governors of the federal reserve system ( 2014 ). “ minutes of the federal open market committee, june 17 – 18, 2014, ” press release, july 9. the sep is an addendum to the fomc minutes. for the june 2014 sep, see board of governors ( 2014 ). the september 2015 sep is available in board of governors ( 2015b ). for the october 2015 fomc statement, see board of governors ( 2015a ). bis central bankers ’ speeches — — — — ( 2015a ). “ federal reserve issues fomc statement, ” press release, october 28. — — — — ( 2015b ). “ minutes of the federal open market committee, september 16 – 17, 2015, ” press release, october 8. bussiere, matthieu, simona delle chiaie, and tuomas a. peltonen ( 2014 ). “ exchange rate pass - through in the global economy : the role of emerging market economies, ” imf economic review, vol. 62 ( 1 ), pp. 146 – 78. gopinath, gita ( 2015 ). “ the international price system, ” nber working paper series 21646. cambridge, mass. : national bureau of economic research, october. hofmann, boris, ilhyock shim, and hyun song shin ( forthcoming ). “ the risk taking channel of currency appreciation, ” bis working paper. loretan, mico ( 2005 ). “ indexes of the foreign exchange value of the dollar ( pdf ), ” federal reserve bulletin, vol. 91 ( winter ), pp. 1 – 8. yellen, janet l. ( 2015 ). “ inflation dynamics and monetary policy, ” speech delivered at the philip gamble memorial lecture,

volatile food and energy components. 7 this particular model implies that core pce inflation dips about 0. 5 percent in the two quarters following the appreciation before gradually returning to baseline, which is consistent with a four - quarter decline in core pce inflation of about 0. 3 percent in the first year following the shock. while the board staff uses a range of models to gauge the effect of shocks, the model employed in figure 4 – as well as other models used by staff – suggests that the dollar ’ s large appreciation will probably depress core pce inflation between 1 / 4 and 1 / 2 percentage point this year through this import price channel. thus, given that core pce inflation is running around 1 - 1 / 4 percent on a four - quarter - change basis, the stronger dollar has played a material role in holding core pce inflation below 2 percent. a second channel through which dollar appreciation reduces inflation is by increasing economic slack. greater slack amplifies the downward pressure on inflation, although the quantitative effect is probably fairly modest given the flat slope of the phillips curve. because the pass - through of dollar appreciation to oil and food commodity prices is much higher than for most imports, dollar appreciation tends to depress overall pce inflation by even more than it depresses core inflation. an important difference between the transmission of dollar appreciation to inflation compared with output is that the effects on inflation are probably more transient. in particular, given that most of the effect on inflation occurs through changes in import prices – and import prices respond quickly to the exchange rate – the peak effect on inflation probably occurs within a few quarters. from the standpoint of the outlook, this transience means that some of the forces holding down inflation in 2015 – particularly those due to a stronger dollar and lower energy prices – will begin to fade next year. consequently, overall pce inflation is likely on this account alone to rebound next year to around 1 - 1 / 2 percent. and as long as inflation expectations remain well anchored, both core and overall inflation are likely to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. this econometric model is described in the appendix to yellen ( 2015 ). bis central bankers ’ speeches u. s. monetary policy and the dollar the stronger dollar and some of the factors causing it, including weaker foreign demand, have played an important role in accounting for revisions to the expected