AIG's failure revealed systemic problems in the OTC derivatives market that went well beyond the failure of a single market participant.
— Jerome Powell
Over the longer run, advanced economy policy actions that strengthen global growth and global trade will benefit the EMEs as well.
We understand that America's prosperity is bound up with the prosperity of other nations, including emerging market nations.
Although I have never worked in a community bank, I have been a customer, and I know from personal experience the special skills that these institutions bring to their customers.
The Federal Reserve places great importance on our relations with the Bundesbank. Few such relationships have been as important, over the decades, in promoting financial stability and prosperity around the world.
By purchasing and holding large amounts of Treasury securities and MBS, we put additional downward pressure on term premiums and so on long-term rates.
It is worth noting that 'too big to fail' is not simply about size. A big institution is 'too big' when there is an expectation that government will do whatever it takes to rescue that institution from failure, thus bestowing an effective risk premium subsidy. Reforms to end 'too big to fail' must address the causes of this expectation.
Given that trade benefited the Asian economies on the way up, it seems natural that the slowdown in global trade, whatever its causes, could lead to some loss of dynamism and growth in the region.
The FOMC has considerable control over short-term interest rates. We have much less influence over long-term rates, which are set in the marketplace.
Below-target inflation increases the real value of debts owed by households and businesses and reduces the ability of central banks to respond to downturns.
My own experience is that the best outcomes are reached when opposing viewpoints are clearly and strongly presented before decisions are made.
The financial crisis and the Great Recession posed the most significant macroeconomic challenges for the United States in a half-century, leaving behind high unemployment and below-target inflation and calling for highly accommodative monetary policies.
Long-term economic growth depends mainly on nonmonetary factors such as population growth and workforce participation, the skills and aptitudes of our workforce, the tools at their disposal, and the pace of technological advance. Fiscal and regulatory policies can have important effects on these factors.
An efficient payments system provides the infrastructure needed to transfer money in low-cost and convenient ways. Efficient systems are innovative in improving the quality of services in response to changing technology and changing demand.
Mobile devices, high-speed data communication, and online commerce are creating expectations that convenient, secure, real-time payment and banking capabilities should be available whenever and wherever they are needed.
The question of how to structure our nation's financial system arose in the early years of the republic.
I support adjustments designed to enhance the efficiency and effectiveness of regulation without sacrificing safety and soundness or undermining macroprudential goals.
The financial crisis involved significant failures in the functioning, regulation, and supervision of OTC derivatives markets.
In a world of global trade and integrated capital markets, it is natural for economic and financial shocks and policy actions to be transmitted across borders.
By fostering the economic health and vitality of local communities throughout the country, community banks play a central role in our national economy. One important aspect of that role is to serve as a primary source of credit for the small businesses that are responsible for creating a substantial proportion of all new jobs.
Community banks are a crucial part of our economy and the fabric of our society.
Higher asset prices increase wealth and, with a lag, induce higher spending.
The longer workers are unemployed, the greater the likelihood that their skills will erode and workers will lose attachment to the labor force, permanently damaging the economy's dynamism and potential output.
The too-big-to-fail reform project is massive in scope. In my view, it holds real promise. But the project will take years to complete. Success is not assured.
It is quite plausible that the process of increased fragmentation of production across borders is subject to 'diminishing returns' and has its natural limits.
The financial crisis and the Great Recession left firms with excess capacity, reducing incentives to invest. If businesses expect slower growth to continue, that will also hold down investment.
All economic forecasts are subject to considerable uncertainty. There is always a wide range of plausible outcomes for important economic variables, including the federal funds rate.
If the public understands the central bank's views on the economy and monetary policy, then households and businesses will take those views into account in making their spending and investment plans; policy will be more effective as a result.
Over time, low rates can put pressure on the business models of financial institutions.
Our discussions of the economy may sometimes ring in the ears of the public with more certainty than is appropriate.
The Federal Reserve and other central banks have adopted broad public policy objectives to guide the development and oversight of the payments system. At the Fed, we have identified efficiency and safety as our most fundamental objectives, as set forth in our Policy on Payment System Risk.
By the beginning of the 20th century, the debate about monetary policy and the nation's financial system had been going on for over a century. Increasingly, the shortcomings of the existing system were causing too much harm to ignore.
The Fed's organization reflects a long-standing desire in American history to ensure that power over our nation's monetary policy and financial system is not concentrated in a few hands, whether in Washington or in high finance or in any single group or constituency.
While the move to central clearing has made the system safer, we need to make sure that the central counterparties have the resources and risk-management practices to withstand plausible but severe shocks.
The financial crisis revealed important weaknesses in many areas of our financial system.
Emerging market economies have long grappled with the challenges posed by large and volatile cross-border capital flows.
My colleagues on the Board of Governors and I understand the value of having a diverse financial system that includes a large and vibrant contingent of community banks.
Perhaps the greatest challenge for the resolution of a systemic global bank is the possibility that public or private actors in different countries might take local actions that would cause the overall resolution to spin out of control.
Businesses and households react to lower rates by investing and spending more. Lower rates also support the prices of housing and financial assets such as stocks and bonds.
Bailouts may have been more tolerable in the early 1990s when they were rare and their use for a failing bank was uncertain. That is no longer the case.
To ensure financial stability, we expect the provision of U.S. government securities settlement services to be robust in nearly all contingencies.
Increased fragmentation of production across international borders - a natural outgrowth of the gains from specialization - meant more trade for any given value of final production, thus adding to the major expansion in gross trade flows in the 1990s and 2000s.
The only way to ensure that inflation expectations remain safely anchored near the FOMC's target is to keep inflation close to that target on a consistent basis.
Central banking often comes across as obscure and complicated, and we try to help the public understand what we do.
Real short- and long-term rates were relatively high in the late-1990s, so financial excess can also arise without a low-rate environment.
The main long-run contribution monetary policy can make is to provide a stable macroeconomic and financial environment.
The Congress has tasked the Federal Reserve with achieving stable prices and maximum employment - the dual mandate.
Against this backdrop of technological change and heightened expectations, it is worth remembering our broad public policy objectives, which are driven by the fundamental importance of the payments system in our society.
Regional interest rate differentials persisted until around the time of World War I and helped shape the attitudes of Americans living in western areas toward the nation's financial system.
The Federal Reserve seeks to support MDIs in a number of ways, including our Partnership for Progress, our program for outreach and technical assistance to MDIs.
