If incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate and most conducive to meeting and maintaining those objectives.
But the current imbalance between lending and stable funding will make it difficult to return to a model of profitability growth based principally on expanding the volume of business. Vigorous action is needed to tackle operating costs, which have been relatively inflexible in relation to the state of the banking industry.