), “ risk management for monetary policy near the zero lower bound, ” brookings papers on economic activity ( washington : brookings institution ). see federal reserve bank of new york, markets group ( 2015 ), responses to survey of primary dealers ( pdf ) ( new york : frbny, january ). of course, low long - term yields in the united states may not reflect investor pessimism about u. s. economic prospects but instead an expectation that weak economic performance abroad may result in persistent upward pressure on the dollar, thereby putting downward pressure on u. s. net exports, employment, inflation, and thus short - term interest rates. on a closely related issue concerning evidence that investors ’ perceptions of the likelihood of high inflation versus low inflation have shifted noticeably in recent months, see justin wolfers ( 2015 ), “ a prediction market for inflation, or deflation, ” journal of financial economics, vol. 110 ( december ), 696 – 711. for a discussion of these effects, see dave reifschneider, william wascher, and david wilcox ( 2015 ), “ aggregate supply in the united states : recent developments and implications for the conduct of monetary policy, ” imf economic review advance online publication, march 17, doi : 10. 1057 / imfer. 2015. 1. bis central bankers ’ speeches be reversed in a tight labor market, yielding long - term benefits associated with a more productive economy. that said, the quantitative importance of these supply - side mechanisms are difficult to establish, and the relevant research on this point is quite limited. of course, taking a gradualist approach is not without risks. proceeding too slowly to tighten policy could have adverse consequences for the attainment of the committee ’ s inflation objective over time, especially if it were to undermine the fomc ’ s inflation credibility. inflation could, for example, exhibit nonlinear dynamics in which high levels of unemployment place relatively little downward pressure on inflation, but tight labor markets generate marked upward pressure. if so, a decline in unemployment below its natural rate could cause inflation to quickly rise to an undesirably high level. rapid increases in short - term interest rates to arrest such an unwelcome development could, in turn, have adverse effects on financial markets and the broader economy. proceeding too cautiously could also have undesirable effects on financial stability. an environment of prolonged low short - term rates could prompt an excessive buildup in leverage or cause underwriting

is less than 1 / 2 percent. bis central bankers ’ speeches how are economic and financial considerations likely to shape the course of monetary policy over the next several years? let me therefore turn to the second question i posed earlier : how are economic and financial considerations likely to shape the course of monetary policy over the next few years? let me first be clear that the fomc does not intend to embark on any predetermined course of tightening following an initial decision to raise the funds rate target range – one that, for example, would involve similarly sized rate increases at every meeting or on some other schedule. rather, the actual path of policy will evolve as economic conditions evolve, and policy tightening could speed up, slow down, pause, or even reverse course depending on actual and expected developments in real activity and inflation. reflecting such data dependence, as well as some historically unusual policy considerations that i will discuss shortly, the average pace of tightening observed during previous recoveries could well provide a highly misleading guide to the actual course of monetary policy over the next few years. our goal in adjusting the federal funds rate over time will be to achieve and sustain economic conditions close to maximum employment with inflation averaging around 2 percent, responding, as best we can, to the inevitable twists and turns of the economy. keeping in mind the all - important proviso that policy is never predetermined but is always data dependent, what can we say about the appropriate path of policy, assuming the most likely outcomes for real activity, inflation, and related factors? the answer is that it depends, of course, on one ’ s outlook for the economy. today i will focus on the modal outlook presented by fomc participants ’ submissions to the march summary of economic projections ( sep ), which assumes that no further unanticipated disturbances buffet the economy. as i noted at my press conference after last week ’ s fomc meeting, participants generally project that the unemployment rate will continue to fall through late 2017 to levels at or somewhat below estimates of its longer - run sustainable level, accompanied by growth in real gross domestic product that runs somewhat above its estimated longer - run trend with inflation moving up to around 2 percent. this solid economic performance is projected to be consistent with a gradual normalization of monetary policy : the median funds rate projection in the march sep increases a percentage point per year on average through the end of 2017. the projected combination of a gradual rise in the nominal federal funds rate coupled with