to achieving domestic price stability in a sensible manner and seeking to communicate our policy intentions as clearly as possible. let me finish with a few words on the exit from unconventional monetary policies. while it may still be a way off, we know it will come eventually. and the recent market volatility prompted by heightened expectations of imminent tapering in the rate of asset purchases by the federal reserve has provided a salient reminder that it may not be smooth. moreover, although the adoption of accommodative policies was synchronised across the advanced economies, the heterogeneous nature of the recovery, with the united states leading the way and europe bringing up the rear, means that exit is unlikely to be synchronised, which will complicate matters. the international spillovers mentioned earlier can obviously be expected to operate in reverse on exit. and indeed, we have just seen such synchronised increases in long - term sovereign bond yields internationally, together with capital outflows from emerging economies and associated downward pressure on their currencies. but for these countries, the greatest danger during exit will probably lie in the risk of future financial sector disruption if outflows expose currency mismatches on bank and corporate balance sheets. for advanced economies, particularly those lagging behind on the road to exit, there is a risk that market participants see tightening moves in, say, the united states as indicating that tightening is imminent elsewhere. although synchronised movements in bond rates is unsurprising given the high degree of substitutability between relatively safe sovereign bonds, synchronisation at the short end of the yield curve is not warranted if cyclical positions differ. such concerns prompted the monetary policy committee of the bank of england and the governing council of the european central bank to push back against the recent upward movements in the short end of the yield curve in our respective policy statements in july. the mpc took this further at our latest meeting by offering explicit forward guidance on the future path of policy rates and asset purchases. the guidance is similar to that already adopted by the federal open market committee, but differing in details that reflect the different position of the uk economy. in particular, we signalled our intention not to countenance tightening policy until unemployment has fallen to at least 7 %. in addition, while our guidance is subject to two price stability overrides similar to those of the fed relating to internal and external bis central bankers ’ speeches measures of

changes over time as the structure of the economy and labour market evolves. aside from statistical models, we consider a broad range of indicators of conditions in the labour market. one of the most important of these is the underemployment rate, which i discussed earlier. the underemployment rate has grown in importance as a measure of spare capacity in the labour market over time and plays an increasingly significant role in our assessment of full employment. [ 13 ] the recent experience of a rapidly tightening labour market has also demonstrated the importance of other measures of labour market tightness, such as the number of job vacancies relative to jobseekers, and the share of workers who choose to switch jobs ( graph 11 ). graph 11 labour market tightness % unemployment rate underemployment rate % % vacancies - to - unemployment % 4. 0 job mobility * 3. 5 3. 0 2. 5 2. 0 * 1. 5 proportion of employed persons who changed jobs. sources : abs ; rba. our assessment is that, for the first time in decades, firms ’ demand for labour exceeds the amount of labour that people are willing and able to supply. that is, employment is above what we would consider to be consistent with our inflation target. at the same time, with demand for goods and services high relative to the economy ’ s capacity to supply those things, inflation is well above the 2 – 3 per cent target range. as the bank has highlighted frequently over the past year, high inflation makes life difficult for people and damages the functioning of the economy. it erodes the value of savings, hurts family budgets, makes it harder for businesses to plan and invest, and worsens income inequality. that is why the board has been increasing the cash rate. one of the channels through which higher interest rates work to bring down inflation is by reducing the demand for goods and services and hence overall demand for labour. there are other channels too, but this channel is important. what this means is that labour market conditions will invariably soften as inflation is contained. inflation versus employment some may hear this and think that the reserve bank board is prioritising its inflation objective ahead of its full employment objective. although it is true that we are resolute in returning inflation to target, this does not mean that employment has taken a backseat. there are two important points to make here. the first is that the board has been willing to accept a somewhat more gradual return