2  BIS central bankers’ speeches  Conversely, I would be willing to consider tightening policy at a somewhat earlier stage if growth strengthened sufficiently to materially improve the medium-term outlook and substantially reduce tail risks, or if there was evidence of a genuine threat to medium-term inflation, including a rise in inflation expectations. In such a case, I would anticipate that the first step would be to bring in the late 2014 date of the policy guidance. This would effectively tighten financial conditions not only by changing the expected path of short-term interest rates, but also by bringing forward the expected start of balance sheet normalization. Regional economic conditions Let me turn now to the regional economy, the focus of our presentations today. Since our last briefing, the recovery in the region has picked up some steam. As attendees at previous regional press briefings may recall, the New York Fed produces economic activity indexes to help monitor the performance of the regional economy. Based on these measures, activity in New York State and New York City has expanded at a healthy clip, while New Jersey’s growth continues at a more moderate pace. In Puerto Rico, the activity index produced by the Government Development Bank for Puerto Rico shows that the Island’s downturn appears to have ended, but the pick up that we noted at our last briefing has not persisted and the level of activity there has stalled.
And, households appear quite far along in the deleveraging process by a number of important measures. For example, the ratio of household debt service relative to income is back to levels last seen in the early 1990s. For these reasons, I expect that growth will gradually strengthen over the next few years. Nevertheless, significant downside risks remain, especially those related to the challenges in Europe and how the potential “fiscal cliff” in the United States will be resolved after the fall elections. Even if these risks do not materialize, I anticipate only slow progress toward full employment. BIS central bankers’ speeches  1  On the inflation side, in recent years our forecasts have been noticeably more accurate than on the growth side, and we have succeeded in delivering inflation very close to our 2 percent price stability objective. Through March, as measured by the personal consumption expenditures deflator, overall consumer prices have risen 2.1 percent over the past 12 months, and prices excluding food and energy have risen 2.0 percent. But price trends have been a bit stickier than one might have anticipated given the large amount of slack in the economy. To some degree, this likely reflects the anchoring exerted by stable inflation expectations. But some of the price pressures can be attributed to other, more temporary, factors:   Higher oil and gasoline prices and their pass-through into the costs of other goods and services.   Upward pressure on imputed homeowners rents due to increased demand for rental housing.