purchases since last december – this might encourage a somewhat faster pace. in contrast, if bond yields were to move sharply higher, as was the case last spring, then a more cautious approach might be warranted. in terms of the level of rates over the longer - term, i would expect them to be lower than historical averages for three reasons. first, economic headwinds seem likely to persist for several more years. while the wealth loss following the financial crisis has largely been reversed, the great recession has scarred households and businesses – this is likely to lead to greater precautionary saving and less investment for a long time. also, as noted earlier, headwinds in the housing area seem likely to dissipate only slowly. second, slower growth of the labor force due to the aging of the population and moderate productivity growth imply a lower potential real gdp growth rate as compared to the 1990s and 2000s. because the level of real equilibrium interest rates appears to be positively related to potential real gdp growth, this slower trend implies lower real equilibrium interest rates even after all the current headwinds fully dissipate. it is worth noting that the views of market participants as expressed in the eurodollar futures market and those of fomc participants as expressed in the march summary of economic projections seem consistent with one another and indicate an anticipated lift - off sometime near the middle of next year. bis central bankers ’ speeches third, changes in bank regulation may also imply a somewhat lower long - term equilibrium rate. consider that, all else equal, higher capital requirements for banks imply somewhat wider intermediation margins. while higher capital requirements are essential in order to make the financial system more robust, this is likely to push down the long - term equilibrium federal funds rate somewhat. putting all these factors together, i expect that the level of the federal funds rate consistent with 2 percent pce inflation over the long run is likely to be well below the 4¼ percent average level that has applied historically when inflation was around 2 percent. precisely how much lower is difficult to say at this point in time. the fact that the equilibrium real federal funds rate is likely to be lower for a long time underscores the need for caution in applying the benchmark taylor rule as a guide to the appropriate stance of monetary policy. as typically applied, the taylor rule assumes an equilibrium real rate of interest of 2 percent. this seems much too high in the current economic environment in which headwinds persist, and somewhat too high

environment that includes effective risk management and rigorous controls filters down the line of the organization. to summarize, these aspects of effective bank level management – good corporate governance, rigorous internal controls and effective risk management – represent the first and most important line of defense against potential problems. and this will increasingly be the case as the activities of banks and other financial institutions become more complex and more global. market discipline after effective management at the bank level, the second line of defense against financial instability is market discipline, which is an increasingly important ally of the official supervisor. when armed with timely and meaningful information on banks ’ performance, market participants can, by way of their investment and credit decisions, encourage bank managers and boards of directors to manage their risk exposures soundly. equally as important, market participants can penalize those institutions that do not. but, of course, effective market discipline is not possible without meaningful public disclosure. while significant progress has been made in recent years, it unfortunately remains the case that disclosure practices have not kept pace with the rapid changes in banks ’ business activities and risk exposures, and with how these exposures are measured and managed. for this situation to be fully remedied, notions of what is proprietary information and what should be in the public domain must change. knowing a company ’ s appetite for risk and its approach to, and methodologies for, managing risk is essential to understanding the risks of being a shareholder, a creditor or a counterparty. all financial market participants should approach the issue of disclosure as users of financial statements rather than as issuers. there should be little question about the urgency of achieving dramatic progress in this area. clearly, a full appreciation of risk cannot be achieved without sufficient information. all of us know that there is no greater enemy to financial stability than a loss of confidence – and nothing undermines confidence more than a lack of reliable information. discipline imposed by markets might not be pleasant, but more, higher quality information – in a word, transparency – bolsters the confidence of depositors and other creditors and therefore makes doing business easier and more secure for everyone. of course, progress on the disclosure front will be limited until accounting standards are enhanced to ensure proper valuation and to reflect innovations over the past decade, both in terms of new products and modern risk management techniques. accounting systems serve a variety of purposes, but none more important than helping creditors and investors make rigorous and clear - eyed decisions as to which enterprises meet market tests of efficiency, competitive