well be associated with higher market interest rates, unless domestic saving rebounds. near - term outlook going forward, the members of the federal reserve board and presidents of the federal reserve banks believe there are mechanisms in place that should help to slow the growth of spending to a pace more consistent with that of potential output growth. consumption growth should slow some, if, as seems most likely, outsized gains in share values are not repeated. in that event, businesses may trim their capital spending plans, a tendency that would be reinforced by the higher level of market interest rates that borrowers now face. but with large unexploited long - term profit opportunities stemming from still - burgeoning innovations and falling prices of many capital goods, the typical cyclical retrenchment could be muted. working to offset somewhat this anticipated slowing of the growth of domestic demand, our export markets can be expected to be more buoyant because of the revival in growth in many of our important trading partners. after considering the various forces at work in the near term, most of the federal reserve governors and bank presidents expect the growth rate of real gdp to be between 3½ and 3¾ % over the four quarters of 1999 and 2½ to 3 % in 2000. the unemployment rate is expected to remain in the range of the past eighteen months. inflation, as measured by the four - quarter percent change in the consumer price index, is expected to be 2¼ to 2½ % over the four quarters of this year. cpi increases thus far in 1999 have been greater than the average in 1998, but the governors and bank presidents do not anticipate a further pickup in inflation going forward. an abatement of the recent run - up in energy prices would contribute to such a pattern, but policymakers ’ forecasts also reflect their determination to hold the line on inflation, through policy actions if necessary. the central tendency of their cpi inflation forecasts for 2000 is 2 to 2½ %. pre - emptive policymaking in its deliberations this year, the fomc has had to wrestle with the issue of what policy setting has the capacity to sustain this remarkable expansion, now in its ninth year. for monetary policy to foster maximum sustainable economic growth, it is useful to pre - empt forces of imbalance before they threaten economic stability. but this may not always be possible – the future at times can be too opaque to penetrate. when we can be pre - emptive, we should be,

banks operating under hierarchical mandates typically set their inflation objective in terms of a forecast or as a medium - term objective, allowing a gradual return to their objective if inflation deviates from it. in addition, the different regimes appear to have converged over time. it is harder to tell the difference between what lars svensson refers to as flexible - inflation - targeting and dual - mandate regimes. so the question with respect to the mandate remains : does it affect the policy outcomes and macroeconomic performance among the countries represented on the first panel? assuming there is no long - run trade - off between inflation and unemployment and assuming that the economy gravitates to full employment in the long run, central banks will achieve full employment and price stability in the long run under either mandate. but the nature of the mandate could affect their choice of where their policies might put them on the trade - off between output variability and inflation variability. does the dual mandate make the fed more responsive to downward demand shocks? does the hierarchical mandate permit canada, great britain and the euro area to more tightly control inflation over the shorter run? or do practices among these central banks differ less than it might appear from a strict reading of their mandates? by the way, i only have time to ask the interesting questions, not to answer them. that will be the panel's job, i hope. instrument independence each of the central banks represented on the panel has instrument independence. the motivation for granting such independence is to insulate the central bank from political interference, especially interference motivated by the pressure of elections to deliver short - term gains irrespective of longerterm costs. the purpose of this insulation is not to allow the central bank to pursue whatever policy it prefers – indeed, as i just noted, governments invariably define the broad goals for the central bank – but instead to provide a credible commitment of the government, through its central bank, to achieve those goals, especially price stability. central bank independence is in part the result of formal institutional arrangements typically incorporated in the legislation defining and creating the central bank. the most important requirement is that the central bank is the final authority on monetary policy decisions. that is, monetary policy decisions should not be subject to the veto of the executive or legislative branches of government. this is further protected if other institutions of the government – typically the treasury department or the ministry of finance – are not represented on the monetary policy committee. a lesser protection would be to allow such representation, but only in a non -