We cannot be certain about the underlying strength of the expansion, the maximum level of employment consistent with price stability, or the longer-run level of interest rates consistent with maximum employment. Policy must adjust as our understanding of these factors changes.
To be sure, our bond yields are now comparable to international bond yields, and I used to deduce from that that the new monetary policy framework had produced a profound reduction in inflationary expectations. I now believe that I was unjustifiably optimistic, because it is foreign savers who have bought our bonds in huge volumes, thereby reducing bond yields to international levels.