Range (*)  Spot  U.K.  U.S.A.  South Korea  Mexico  Japan  Norway  Malaysia  Poland  China  India  60 Israel  60 N. Zealand  80 Chile  80 Turkey  100  Thailand  100  South Africa  120  Hungary  120  Canada  140  Philippines  140  Czech Rep.  160  Rusia  160  Australia  180  Brazil  Figure 6 Real exchange rates in the world (index, average January 2000 - April 2011=100) 180  Average  (*) The range indicates maximum and minimum values shown by the currency during specified period. Sources: Central Bank of Chile and Bank for International Settlements (BIS). 10  BIS central bankers’ speeches  Figure 7 Incidences in monthly CPI inflation (*) (percentage points) 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 -0.8  1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 -0.8 10  Mar. May  Jul. Sep.  Nov.  11  Mar. May  Foodstuffs minus fresh fruits and vegetables (21.3%) Other (64.7%) Fuels (5.7%) Fresh fruits and vegetables (2.9%) Public utilities (5.4%) CPI (*) In parentheses, shares in CPI basket. Sources: Central Bank of Chile and National Statistics Institute.
Headwinds in the aftermath of the financial crisis are still in evidence, particularly the diminished availability and tougher terms for residential mortgage credit. How fast the normalization process will proceed depends mainly on two factors: how the economy evolves and how financial market conditions respond to movements in the federal funds rate. If financial market conditions do not tighten much in response to higher short-term interest rates, we might have to move more quickly. After all, the point of raising short-term interest rates is to exert some restraint on financial market conditions. In contrast, if financial conditions tighten unduly, then this will likely cause us to go much more slowly or even to pause for a while. At the end of the day, we will move short-term interest rates to generate the set of financial market conditions that we deem is most consistent with our employment and inflation objectives. How high will short-term rates ultimately need to go? I think this issue is very difficult to judge for a number of reasons. First, it depends on how financial market conditions evolve in response to our monetary policy adjustments. Second, it depends on other factors, such as real potential GDP growth, which, in turn, depends on the growth rates of the labor force and of productivity. My current thinking is that the long-run nominal federal funds rate consistent with 2 percent inflation is somewhat lower than in the past. My point estimate is 3½ percent, but I wouldn’t bet the farm on this.