a persistent deviation from its inflation objective would depend on the circumstances - - and, in particular, on the outlook for employment and inflation and an assessment of the likely lags in the effects of monetary policy. see board of governors of the federal reserve ( 2016 ), " federal reserve issues fomc statement, " press release, january 27, www. federalreserve. gov / newsevents / press / monetary / 20160127a. htm. the fomc's statement on longer - run goals and monetary policy strategy, amended effective january 26, 2016, is available on the board's website at www. federalreserve. gov / monetarypolicy / files / fomc _ longerrungoals _ 20160126. pdf. bis central bankers ’ speeches my second topic is how best to integrate balance sheet policy with interest rate policy. the committee has indicated that the federal reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively. but that statement leaves open the question of when we should begin to reduce the size of our balance sheet. because the tools i mentioned earlier - - the payment of interest on reserve balances and the overnight reverse repurchase facility - - can be used to raise the federal funds rate independent of the size of the balance sheet, we have the flexibility to adjust the size of our balance sheet at the appropriate time. with the federal funds rate still quite low and expected to rise only gradually, i think there is some benefit to maintaining a larger balance sheet for a time. doing so should help support accommodative financial conditions and so reduce the downside risks to the economic outlook in the event of a future adverse shock to the economy. consistent with this view, the committee has decided to continue to reinvest principal payments from its securities portfolio until normalization of the federal funds rate is well under way. the decision about when to cease or begin phasing out reinvestment will depend on how economic and financial conditions and the economic outlook evolve. 5 thank you. i would be happy to respond to some questions, starting with those from our moderator today, tom keene. see the committee's policy normalization principles and plans ( see note 1 ) as well as the discussion under the heading " system open market account reinvestment policy " in the minutes of the september 2015 committee meeting ( www. federalreserve. gov / monetarypol

large size of the federal reserve's balance sheet, the fomc is employing new tools to implement monetary policy. in particular, to raise the federal funds rate we increased the interest rate we pay on reserve balances that depository institutions hold at the federal reserve. we also employed an overnight reverse repurchase facility, through which we interact with a broad range of firms to help provide a soft floor for the federal funds rate consistent with our target range. 2 these new tools have worked well, and the federal funds rate and other short - term interest rates have increased slightly, as expected. we will continue to monitor financial market developments closely, and we can make adjustments to our tools if necessary to maintain control over money market rates. at our meeting last week, we left our target for the federal funds rate unchanged. economic data over the intermeeting period suggested that improvement in labor market conditions continued even as economic growth slowed late last year. but further declines in oil prices and increases in the foreign exchange value of the dollar suggested that inflation would likely see board of governors of the federal reserve ( 2015 ), " federal reserve issues fomc statement, " press release, december 16, www. federalreserve. gov / newsevents / press / monetary / 20151216a. htm. the committee's policy normalization principles and www. federalreserve. gov / newsevents / press / monetary / 20140917c. htm. bis central bankers ’ speeches plans are available at remain low for somewhat longer than had been previously expected before moving back to 2 percent. in addition, increased concern about the global outlook, particularly the ongoing structural adjustments in china and the effects of the declines in the prices of oil and other commodities on commodity exporting nations, appeared early this year to have triggered volatility in global asset markets. at this point, it is difficult to judge the likely implications of this volatility. if these developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the united states. but we have seen similar periods of volatility in recent years that have left little permanent imprint on the economy. as the fomc said in its statement last week, we are closely monitoring global economic and financial developments and assessing their implications for the labor market and inflation, and for the balance of risks to the outlook. 3 now, i expect that in a