our proposal that would seek to ensure that underwriting practices and loan terms on higher - priced loans do not present unwarranted risks to consumers. there is another potential source of risk to consumers that i want to address that is related to " steering " - - the risk that when they use the services of a mortgage broker, they do not appreciate the extent to which the broker's interests may diverge from the consumer's interests because of " yield spread premiums. " 6 the growth of the market for brokerage services has no doubt increased competition in the market for mortgage loans, to the benefit of consumers. moreover, the yield spread premium, a payment from a lender to a broker based on the loan's interest rate, is sometimes the best way for a consumer to fund the cost of a broker's services. however, when a lender pays a broker for a loan that has a higher rate, that payment can create a conflict of interest between the broker and the consumer. this conflict is problematic if the consumer does not know it exists or assumes, incorrectly, that the broker is obligated to put the consumer's interests first. in such cases, the consumer cannot protect his or her own interests, and competition for loans and for brokerage services does not work effectively. therefore, we have proposed to prohibit a lender, for both prime and subprime loans, from paying a broker any more than the consumer had expressly agreed that the broker would a “ yield spread premium ” is the present dollar value of the difference between the lowest interest rate the wholesale lender would have accepted on a particular transaction and the interest rate the broker actually obtained for the lender. this dollar amount is usually paid to the mortgage broker. it may also be applied to other loan - related costs, but the board ’ s proposal concerns only the amount paid to the broker. receive. this agreement must be executed up - front, before the consumer has submitted an application and become invested in closing the deal. the combination of stricter regulation and better disclosure that we are proposing should help reduce a broker's incentive to steer a consumer to a higher rate, empower consumers to shop and negotiate among brokers, and preserve consumers'option to use the services of a broker. better and earlier information for consumers lastly, to protect consumers and promote competition, our proposed regulation would prohibit misleading mortgage advertising and require that consumers receive loan - specific disclosures early in the application process,

of course, price stability is one of the objectives for monetary policy set by the congress and, indeed, is highly desirable in its own right. and, of course, the price level is the macroeconomic variable over which a central bank exerts the most direct control in the long run. second, in the long run price stability promotes high employment and low nominal interest rates - the other objectives set by the congress - as well as productivity and throughout this talk i follow a common fed practice in using the core personal consumption expenditure ( pce ) deflator to measure inflation. relative to the more familiar consumer price index ( cpi ), the pce deflator ( 1 ) has broader coverage, is believed to be based on more accurate expenditure weights, ( 3 ) is constructed in a manner that reduces so - called substitution bias, ( 4 ) is measured more consistently over time, and ( 5 ) arguably does a better job measuring medical inflation. the core pce deflator excludes volatile components, notably the prices of food and energy. core inflation measures in general are probably better indicators of the underlying rate of inflation, with which central banks are typically most concerned. standard inflation measures probably overstate increases in true inflation by about 1. 0 percentage point. for example, lebow and rudd ( 2002 ) estimate that measured inflation using the consumer price index overstates the actual change in the cost of living by about 0. 9 percentage points per year, with a confidence interval ranging from 0. 3 percentage point to l. 4 percentage points per year. ( the bias in the pce deflator, which is chain - weighted, may be a bit less. ) in addition, as i discussed in a previous talk, aiming for an inflation rate modestly above zero provides a useful buffer against deflation risk. stock and watson ( 2002 ) note that the standard deviation of annual growth rates in real gdp fell from 2. 7 percent during 1960 - 83 to only 1. 6 percent in 1984 - 2001. they attribute 20 to 30 percent of this reduction in volatility to improvements in monetary policy. arguably, however, stabilizing factors that stock and watson treat as exogenous, such as the reduced variability of commodity prices ( other than oil ), are actually in part the result of more stable policies. economic growth. third, and most subtly, in the short run a record of consistently low inflation increases central bank credibility and stabilizes inflation expectations, effects that in