Participants in financial markets seem to believe that in the current benign environment the FOMC will succeed indefinitely. There is no evidence, however, that the business cycle has been repealed. Another recession will doubtless occur some day owing to circumstances that could not be, or at least were not, perceived by policymakers and financial market participants alike.
*  *  *  I’m very pleased to participate in this conference honoring my good friend Mervyn King. As Mervyn noted in a recent speech in New York, we had adjoining offices at MIT as young academics and never imagined that 30 years later we still would be colleagues – as central bankers.1 Now, as then, I value his advice and insight.