For this reason, monetary policy is transmitted through a wide variety of channels, including one that we call the "interest rate channel". Through this channel, our interest rate increases impact the costs of borrowing. This makes it more expensive for households and enterprises to take out loans. As a result, their demand for loans falls.
In fact, the low funds rate has been necessary to promote growth that, to date, has been just sufficient to begin reducing substantial margins of slack in resource utilization. Still, as my analysis indicates, the unusual shocks that have impinged on demand and bolstered potential supply over the past several years are abating, or should soon do so.