closer to 2 percent. this projection, however, depends critically on expectations for future inflation remaining reasonably well anchored ; as the fomc has noted, low readings for some indicators of expected inflation deserve close watching. let me now turn to the monetary policy outlook. as you know, at our september meeting, the fomc decided to keep the target range for the federal funds rate at 1 / 4 to 1 / 2 percent. as we noted in the statement, the recent pickup in economic growth and continued progress in the labor market have strengthened the case for an increase in the federal funds rate. 3 indeed, in our individual economic projections prepared in advance of the september meeting, nearly all fomc participants anticipated an increase in the target range for the federal funds rate by the end of this year. moreover, as economic growth has picked up and some of the earlier concerns about the global outlook have receded, the committee judged the risks to the u. s. economic outlook to be roughly balanced. given that generally positive view of the economic outlook, one might ask, why did we not raise the federal funds rate at our september meeting? our decision was a close call, and leaving the target range for the federal funds rate unchanged did not reflect a lack of confidence in the economy. conditions in the labor market are strengthening, and we expect that to continue. and while inflation remains low, we expect it to rise to our 2 percent objective over time. but with labor market slack being taken up at a somewhat slower pace than in previous years, scope for some further improvement in the labor market remaining, and inflation continuing to run below our 2 percent target, we chose to wait for further evidence of continued progress toward our objectives. as we noted in our statement, we continue to expect that the evolution of the economy will warrant some gradual increases in the federal funds rate over time to achieve and maintain our objectives. that assessment is based on our view that the neutral nominal federal funds rate — that is, the interest rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel — is currently low by historical standards. with the federal funds rate modestly below the neutral rate, the current stance of monetary policy should be viewed as modestly accommodative, which is appropriate to foster further progress toward our objectives. but since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future, and gradual increases in

and even signal a healthy economy. accordingly, for policymakers who have to confront these situations in real time, a fundamental challenge is identification. when asset prices are moving in an unusual manner, is the movement unsustainable ; does the pattern arise from excessive liquidity in the market ; and will policy be challenged by that combination at some future date? or are we observing a more complex process, perhaps less aberrant and less prone to a troubling reversal? the answers to these questions depend in part on the link between an asset's price and some estimate of its " fundamental " value. unfortunately, from the point of view of both the analyst and the policymaker, the link between an asset's price and the structure of its return is hard to pin down, as it typically embodies complex factors that are inherently difficult to measure, such as expected future earnings, riskiness, and risk aversion. consequently, for evaluating in real time whether prices may be " off track " and, if so, by how much, we have to fall back on more readily observable measures that, in principle at least, should bear some systematic relationship to ideal measures and that can be house prices in other industrial countries have shown similar, but generally more modulated, swings. the correlation between real house prices and money growth in japan was close to zero during the deflationary 1990s. assessed against historical experience. for equities, a stock's price - earnings ratio is a standard benchmark for assessing valuation. in the late 1990s, the price - earnings ratio for u. s. equities especially in the high - tech area - soared to record levels, and the so - called equity risk premium narrowed to a historical low. there was a strong sense at the time that such elevated price levels were unusual, but there was no uniform consensus regarding whether or not they were sustainable. all agreed, however, that the pricing of assets, given profit expectations, was difficult. and even after we have seen a major correction, our understanding of what drove that process and what the proper level should have been - and should be now - still is unsettled. 7 for housing, rent - to - price ratios and income - to - price ratios are commonly used measures to assess valuation. over the past several years, both measures have decreased sharply in many countries, and they currently are well outside historical ranges in some countries. in 2004, u. s. home