require for expected credit losses and a risk premium, and it would be reasonable to expect that investors would have a stronger conviction about expected credit losses in the near term than at future horizons. currently, forward risk spreads one to two years ahead are quite low by historical standards, consistent with very liquid balance sheets, multi - decade low leverage ratios, and robust profitability. in sharp contrast, one - year forward risk spreads five or ten years ahead are higher relative to their averages of the previous ten years. i take some comfort from these implied forward spreads to “ financial markets and the federal reserve, ” remarks by governor kevin m. warsh to the new york stock exchange, november 21, 2006. suggest that investors may not be unduly sanguine about potential credit losses beyond the nearterm. 10 of course, too much precision cannot be put on assessments of risk premiums. this is an area worthy of continued analysis. some market participants tell me that the very low bond default rates seen recently, realized and expected, are themselves a reflection of liquidity. that is, excess market liquidity may have allowed less than creditworthy firms to refinance their obligations, thereby only deferring their financial difficulties. other observers note the rise in the second half of last year in the share of new bond issuance that is rated highly speculative, and an increase in purchase and debt - multiples for leveraged buy - outs, suggesting some pick - up in risk - taking that may be indicative of overconfidence. this possibility cannot be ruled out. others have pointed to the low levels of stock market volatility in recent months ( prior to last week ) as indicative of pressures from excess liquidity. naturally, one would expect that high levels of liquidity would lead to lower volatility as investors quickly force asset prices back to their fundamental values. but, recent levels are not unprecedented ; they were equally low during much of the 1960s. and, of course, volatility itself can be volatile. there may be good fundamental reasons for risk and risk premiums to be relatively low and for liquidity and confidence to be reasonably strong. even so, the pace of change in the capital markets by credit buyers and sellers reminds us to constantly revisit assumptions underlying the financial and economic environment. if liquidity conditions and risk premiums of the last several quarters were the sole basis by which to judge the stance of monetary policy, it would be hard to conclude that monetary policy

chiara scotti for their assistance in preparing these remarks. - 2on the federal funds rate to bring the fomc ’ s policy communications into line with the new framework. i will then provide my perspective on how these key elements of the new framework and the related forward guidance connect to the literature on conducting optimal monetary policy at — and after lifting off from — the elb. i will next discuss how the committee ’ s conception of its maximum - employment mandate, a sixth element of the new framework, has evolved since 2012, what this evolution implies for the conduct of monetary policy, and how i plan to factor in this information as i think about the appropriate path for setting the federal funds rate once the conditions for liftoff have been met. i will conclude with a brief recap of my thesis before joining david wessel, seth carpenter, and annette vissing - jørgensen in what i am sure will be an engaging virtual conversation. the new framework and price stability in my remarks today, i will focus on six key elements of our new framework and the forward guidance provided by our september fomc statement. five of these elements define how the committee will seek to achieve its price - stability mandate over time, while the sixth pertains to the committee ’ s conception of its maximumemployment mandate. of course, the committee ’ s price - stability and maximumemployment mandates are generally complementary, and, indeed, this complementarity is recognized and respected in the forward - guidance language introduced in the september fomc statement. 3 however, for ease of exposition, i will begin by focusing on the five the september 2020 fomc statement says : “ the committee decided to keep the target range for the federal funds rate at 0 to 1 / 4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the committee ’ s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time ” ( paragraph 4 ). the statement is available on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / fomccalendars. htm. - 3elements of the new framework that define how the committee will seek to achieve over time its price - stability mandate, before discussing how maximum employment is defined in the new framework and what this definition implies for the conduct and communication of