Finally, the extent to which aggregate demand is aligned with the economy's underlying productive potential also influences inflation. As I noted earlier, FOMC participants project that the growth in economic activity should moderate to a pace close to that of the growth of potential both this year and next. Should that moderation occur as anticipated, it should help to limit inflation pressures over time.
To my mind, there are three reasons why to emphasise risks in monetary policy: •  Firstly, the uncertainties regarding the different channels of the transmission process and its possibly long and varying time lags. In this respect it is very important to understand the functioning of financial markets, including how the private sector perceives risk.