management to be able to use them as guides. since 2012, declining unemployment has had surprisingly little effect on inflation, prompting a steady decline in estimates of u * ( figure 3 ). 11 standard estimates of r * have declined between 2 and 3 percentage points over the past two decades. some argue that the effective decline is even larger. 12 incorporating a lower value of u * into policymaking powell ( 2018 ). the fact that inflation did not react much to changing unemployment also led some to reassess other structural features such as the slope of the phillips curve. as discussed in rachel and summers ( 2019 ), many factors combine to determine the normal growth rate of the economy and r *. persistent movements in longer - term interest rates in a stable inflation environment are one indicator of r * movements. - 7 does not require a significant change in our approach. the significant fall in r *, however, may demand more fundamental change. a lower r * combined with low inflation means that interest rates will run, on average, significantly closer to their effective lower bound. the key question raised by this era, then, is how we can best support maximum employment and price stability in a world with a low neutral interest rate. current policy and the three key questions let me turn now to the current implications for monetary policy of the questions raised by these three eras. the first era raised the question of whether the fed can avoid excessive inflation. inflation has averaged less than 2 percent over the past 25 years, and low inflation has been the main concern for the past decade. low inflation seems to be the problem of this era, not high inflation. nonetheless, in the unlikely event that signs of too - high inflation return, we have proven tools to address such a situation. the second era ’ s question — whether long expansions inevitably breed financial excesses — is a challenging and timely one. hyman minsky long argued that, as an expansion continues and memories of the previous downturn fade, financial risk management deteriorates and risks are increasingly underappreciated. 13 this observation has spurred much discussion. at the end of the day, we cannot prevent people from finding ways to take excessive financial risks. but we can work to make sure that they bear the costs of their decisions, and that the financial system as a whole continues to function effectively. since the crisis, congress, the fed, and other regulatory authorities here and around the world have taken substantial steps to achieve these goals. banks and other

. edt ( 8 : 00 a. m. mdt ) august 23, 2019 figure 1. era 1 : 1950−82 a. real gdp growth quarterly b. unemployment rate quarterly percent percent −5 1950 1956 1962 1968 1974 1980 1950 1956 1962 1968 1974 1980 c. pce inflation d. federal funds rate quarterly quarterly percent percent overall core −2 1950 1956 1962 1968 1974 1980 1950 1956 1962 1968 1974 1980 note : unemployment and federal funds data are quarterly averages ; overall personal consumption expenditures ( pce ) are the four−quarter change in the pce price index ; core pce is the four−quarter change in the pce price index less food and energy ; real gross domestic product ( gdp ) growth is the four−quarter change in the level of real gdp ; federal funds data start in july 1954 ; core pce data start in january 1960 ; all data extend through 1982 : q4. shaded bars indicate periods of business recession as defined by the national bureau of economic research. source : for overall pce, core pce, and real gdp growth, the bureau of economic analysis ; for the unemployment rate, bureau of labor statistics ; for the federal funds rate, board of governors of the federal reserve system ; all series retrieved from the federal reserve bank of st. louis, fred. figure 2. eras 2 and 3 : 1983−2009 and 2010−present a. real gdp growth b. unemployment rate quarterly quarterly percent percent −5 c. pce inflation d. federal funds rate quarterly quarterly percent percent overall core −2 note : unemployment and federal funds data are quarterly averages ; overall personal consumption expenditures ( pce ) are the four−quarter change in the pce price index ; core pce is the four−quarter change in the pce price index less food and energy ; real gross domestic product ( gdp ) growth is the four−quarter change in the level of real gdp ; all data extend through 2019 : q2. shaded bars indicate periods of business recession as defined by the national bureau of economic research. source : for overall pce, core pce, and real gdp growth, the u. s. bureau of economic analysis ; for the unemployment rate, bureau of labor statistics ; for the federal funds rate, board of governors of the federal reserve system ; all series retrieved from the federal reserve bank of st. louis, fred. figure 3. real−time estimates of r * and u * fomc