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Interest rates are still low by historical standards, and they remain just below the range of estimates of that level that would be neutral for the economy. That is neither speeding up nor slowing down growth. My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation remaining near 2 per cent.
There's a great deal to like about this outlook, but we know that things often turn out to be quite different from even the most careful forecasts. And for this reason sound policymaking is as much about managing risks as it is about responding to the baseline forecast. Our gradual pace of raising interest rates has been an exercise in balancing risks. We know that moving too fast would risk shortening the expansion. We also know that moving too slowly, keeping interest rates too low for too long, could risk other distortions in the form of higher inflation or destabilising financial imbalances. Our path of gradual increases has been designed to balance these two risks, both of which we must take seriously.