be sure, our understanding of the forces that drive inflation is imperfect, and we recognize that this year ’ s low inflation could reflect something more persistent than is reflected in our baseline projections. the fact that a number of other advanced economies are also experiencing persistently low inflation understandably adds to the sense among many analysts that something more structural may be going on. let me mention a few possibilities of more fundamental influences. 1 first, given that estimates of the natural rate of unemployment are so uncertain, it is possible that there is more slack in u. s. labor markets than is commonly recognized, which may be true for some other advanced economies as well. if so, some further tightening in the labor market might be needed to lift inflation back to 2 percent. second, some measures of longer - term inflation expectations have edged lower over the past few years in several major economies, and it remains an open question whether these measures might be reflecting a true decline in expectations that is broad enough to be affecting actual inflation outcomes. third, our framework for understanding inflation dynamics could be misspecified in some way. for example, global developments — perhaps technological in nature, such as the tremendous growth of online shopping — could be helping to hold down inflation in a persistent way in many countries. or there could be sector - specific developments — such as the subdued rise in medical prices in the united states in recent years — that are not typically included in aggregate inflation equations but which have contributed to lower inflation. such global and sectoral developments could continue to be important restraining influences on inflation. of course, there are also risks that could unexpectedly boost inflation more rapidly than expected, such as resource utilization having a stronger influence when the economy is running closer to full capacity. in this economic environment, with ongoing improvements in labor market conditions and softness in inflation that is expected to be temporary, the fomc has continued its policy of gradual policy normalization. as the committee announced after our september meeting, we are initiating our balance sheet normalization program this month. that program, which was described in the june addendum to the policy normalization principles and plans, will gradually scale back our reinvestments of proceeds from maturing treasury securities and principal payments from agency securities. as a result, our balance sheet will decline gradually and predictably. 2 by limiting the volume of securities that private investors will have to absorb as we reduce our holdings, the caps should guard against outsized moves in interest rates and other potential market strains

, ” speech delivered at “ prospects for growth : reassessing the fundamentals, ” the 59th annual meeting of the national association for business economics, cleveland, ohio, september 26. 2 for october through december of this year, the decline in the federal reserve ’ s securities holdings will be capped at $ 6 billion per month for treasury securities and $ 4 billion per month for agency securities. these caps will gradually rise over the course of the following year to maximums of $ 30 billion per month for treasury securities and $ 20 billion per month for agency securities and will remain in place through the process of normalizing the size of our balance sheet. 3 / 3 bis central bankers'speeches