will continue to surround future progress. speaking of risks associated with the european debt problem, there is a risk that stagnation in the real economy might become protracted under the vicious cycle of public finance, the financial system, and the real economy, and there is a risk that a financial crisis might occur due to concern over the financial system. put simply about the recent developments in bis central bankers ’ speeches europe, it can be summarized that the risk that stagnation in the real economy, including the spillover to core countries, might become protracted has still been large, while the risk that a financial crisis might occur has subsided due to various policy responses. current state of the u. s. economy let me turn to the united states. the u. s. economy has been on a modest recovery trend with a moderate increase in private consumption, including automobile sales, and signs of a pick - up in the housing market. however, there have been weak developments. improvement in employment has been slow and, amid economic adjustment in europe being protracted, business sentiment, mainly of manufacturers operating globally, has recently become cautious and an increase in business fixed investment has been slowing. against such a backdrop, the federal reserve has recently decided to keep the target range for the federal funds rate at 0 to 1 / 4 percent and changed the outlook for the duration in which exceptionally low levels for the federal funds rate are likely to be warranted, from “ at least through late 2014 ” to “ at least through mid - 2015. ” in addition, it has decided to purchase mortgage - backed securities ( mbs ) issued by governmental financial institutions, called agency mbs, at a pace of 40 billion dollars per month until the outlook for the labor market improves substantially in a context of price stability. in the united states, while balance - sheet adjustments due to the burst of a housing bubble have been progressing to a certain degree, it has steadfastly remained. in such a situation, in addition to the effects of the european debt problem, there are no prospects for a solution to the so - called fiscal cliff problem and there is an increasing awareness about uncertainty of fiscal consolidation over time. those factors are likely to continue to constrain economic activity for the time being through growing cautiousness in household and business sentiment. while the u. s. economy is expected to continue recovering partly supported by accommodative financial conditions, the pace of recovery for the time being is likely to be only moderate

but also spread over to major southern european countries, including spain and italy. in those countries, due to a rise in government bond yields, namely, a decline in government bond prices, financial institutions ’ assets have deteriorated, which has led to a rise in funding costs and instability of financial positions. as a result, financial conditions surrounding firms and households have worsened, posing pressure to suppress economic activity. such deterioration in the real economy and concern over the financial systems have been fed back to the fiscal problem through a decline in revenue and an increase in support for financial institutions. in such a way, in europe, a vicious cycle of public finance, the financial system, and the real economy has been at work, mainly in peripheral countries. therefore, the stagnation in the european economy has been protracted, and that has recently been spread to core countries, including germany, mainly in terms of business sentiment. the growth rate of the euro area economy has been negative for three consecutive quarters. in the meantime, the european authorities have been taking various policy measures. in july, a financial support measure to inject public funds into spanish financial institutions was compiled, and in the beginning of september, the european central bank ( ecb ) introduced a new program to purchase government bonds with a maturity of between one and three years, with no ex ante quantitative limits on the size of purchases. however, in starting purchases of government bonds, the ecb is going to make some conditions. for example, the issuer countries of bonds to be purchased will have to accept monitoring by the eu and the imf on the progress of fiscal consolidation. thanks to those various policy responses, stability has been maintained in interbank funding markets, and investors ’ risk aversion has abated somewhat in international financial and capital markets as a whole. the policy responses by the ecb and other policy authorities are indispensable for containing the vicious cycle of public finance, the financial system, and the real economy. however, in order to resolve the european debt problem fundamentally, it is necessary for countries whose fiscal sustainability has been a cause for concern to make some progress in meeting the challenges such as fiscal consolidation, strengthening medium - to long - term growth potential, and reinforcing the stability of the financial system. in addition, for europe as a whole, integrating fiscal policy and banking supervision of the nations is an unavoidable challenge. none of these challenges is easy to meet and thus it is likely that high uncertainty