And while the ECB’s (European Central Bank) framework is less focused on quantitative targets, there is little doubt that the ECB’s willingness to expand its balance sheet through lending and through the OMT (Outright Monetary Transactions program) has been a key support to stability. This activism has some observers asking – with some justification in my view – whether central banks are trying to do too much. Concerns are being raised as to whether price stability and financial stability are being put at risk, and about potential spillovers into currency markets. Monetary policy is, after all, a blunt instrument. It supports investment and consumption in the real side of the economy by stimulating financial activity, by lowering borrowing costs and boosting financial wealth. But, as we have learned the hard way, easy monetary and credit conditions are also the stuff out of which credit excesses and bubbles can form So the question many central banks face is whether the benefits of further easing are worth the potential costs: in essence, will we get enough risk-taking on the real side of the economy, before we get too much on the financial side? Of course, this is not a static calculation. Sound structural policy can improve the odds that monetary stimulus feeds through to the real economy. After all, firms’ decisions to invest, hire more workers and expand their operations depend not just on the cost and availability of funds, but also on the opportunities and the uncertainties in the business environment.
I expect GDP growth to be around 2-1/4 percent this year, moderately above my estimate of the long-run sustainable growth rate for the economy. In my past speeches, I often mentioned the fact that we’re nearing the longest expansion on record. Well, as of this month, I can finally say that we’ve reached that milestone. The economy has been growing for 121 months—a little over 10 years. 1/3  BIS central bankers' speeches  While this is undoubtedly good news, the headline data mask a more nuanced economic picture. Consumer spending has been an important driver of growth, and the most recent readings have been very positive. However, other signs point to slowing growth. In particular, the latest indicators suggest that business fixed investment has softened and that manufacturing production is in decline. And the outlook for growth outside the United States has dimmed, which will weigh on demand for U.S. products. This mixed picture is mirrored in the employment data. On one hand, the unemployment rate, which stands at 3.7 percent, is near the lowest we’ve seen in 50 years. On the other, job growth has slowed this year relative to last year’s pace. Finally, turning to prices, the latest data show that underlying inflation is 1.6 percent, below our 2 percent goal. The major challenge with inflation that’s persistently lower than 2 percent is that low inflation feeds into inflation expectations.