slower pace of quarter - on - quarter real gdp growth in the second half of this year than in the first. looking further ahead, the conditions remain in place for the euro area economy to grow at solid rates around potential, although some volatility in the quarterly growth rates is likely to emerge around the turn of the year, mainly reflecting the impact of an increase in indirect taxes in a large euro area country in january 2007. global economic activity has become more balanced across regions and remains robust, thereby providing ongoing support for euro area exports. investment is expected to remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong earnings, and gains in business efficiency. consumption growth in the euro area should also strengthen further over time, in line with developments in real disposable income, as employment conditions continue to improve. risks to the outlook for economic growth are broadly balanced over the shorter term, taking into account, in particular, the recent slowing down in the us economy on the one hand and the recent fall in oil prices on the other. the oil price decline – if it were to prove lasting – has the potential to lead to somewhat stronger demand and output growth than embodied in our current baseline scenario for activity in the coming quarters. over the longer term, risks to growth continue to lie on the downside, relating mainly to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures, especially after the suspension of the doha round of trade talks, and possible disorderly developments owing to global imbalances. as regards price developments, according to eurostat ’ s flash estimate annual hicp inflation was 1. 6 % in october, after having declined to 1. 7 % in september from 2. 3 % in august. the recent decline in inflation is the combined result of favourable base effects, given in particular the strong rise in oil prices a year ago, and the recent significant fall in oil prices. while the outlook for energy prices remains uncertain, on the basis of current energy prices and the higher quotations on futures markets, inflation rates are likely to increase again in the next few months and early 2007. as a consequence, we expect a high degree of short - term volatility in the annual hicp inflation rate. looking through this volatility, however, hicp inflation will remain elevated at a level above 2 % on average in 2006 and is likely to remain so in 2007. risks to

, for a discussion of balance sheet normalization. see the fomc ’ s policy normalization principles and plans, september 16, 2014. statement regarding reinvestment in treasury securities and agency mortgage - backed securities, september 20, 2017. the size of the balance sheet. this has been accomplished without any evidence of market disruption or volatile price movements ; it has been, as former chair janet yellen once said, like “ watching paint dry. ” 12 the charts in figure 4 also show the projected progression of the portfolio for the rest of the year. runoff from the balance sheet increases over the projection horizon, as the caps attain their terminal value later this year. as had been expected at the start of the program, principal repayments from our agency mbs portfolio are projected to eventually start coming in below the level of the caps. based on current projections, principal payments on the federal reserve ’ s holdings of agency mbs would likely be lower than the monthly cap on redemptions that will be in effect beginning in the fall of this year. consistent with the policy normalization principles and plans, when this occurs in a given month, no reinvestment occurs, and the portfolio size declines by the amount of principal repayment. it is important to remember that mortgage principal repayments are uncertain ; are sensitive to various factors, particularly long - term interest rates ; and could conceivably rise above the level of the cap in the future, particularly if interest rates were to decline. if this were to occur, those amounts above the cap would be reinvested. the cap - based program to normalize the balance sheet was designed at the start to operate exactly in this way : it is the mechanism by which the decline in the balance sheet is kept to a gradual and predictable pace. i expect that the desk will conduct operational readiness exercises during periods of no reinvestment to ensure it remains prepared to reinvest if needed. 13 flexibility when needed : the technical adjustment all of this news is encouraging, and it confirms the efficacy of the fomc ’ s plan to normalize the stance of policy. i ’ d like to turn back to overnight rates for a moment, to speak about the recent technical adjustment to the ior rate and try to answer a few questions that have emerged. although they remained within the fomc ’ s target range, rates paid on the bulk of federal funds trading had ticked up, as can be seen in figure 5. by april 2018, the