The past decade of underperformance on our inflation target highlights that reaching 2 percent inflation will require patience, and we have pledged to hold the policy rate in its current range until not only has inflation risen to 2 percent but it is also on track to moderately exceed 2 percent for some time. Of course, we will be vigilant in parsing the data.
Today, the market still appears to provide a subsidy, of changing and uncertain amount, to very large banks to account for the possibility of a government bailout in the event of failure.13 This subsidy, in the form of lower funding costs, may encourage “too-bigness.” There would be substantial externalities to a large bank failure as well.