The expectation of gradual policy normalization should reduce the likelihood of outsized movements in interest rates.
There is no risk-free path for monetary policy.
Legislative reforms in the 1990s and the public/private structure led managements to expand the GSEs' balance sheets to enormous size, underpinned by wafer-thin slivers of capital, driving high shareholder returns and very high compensation for management.
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.
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.
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 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.
In normal times, at the beginning of each month, the federal government makes a cash advance to the Social Security Trust Fund called the 'normalized tax transfer,' in an amount equal to the estimated payroll taxes for the coming month.
The sale of Treasury bonds, notes, and bills finances the U.S. government, and those securities are, in turn, a primary vehicle for savings for a wide range of U.S. households. Treasury securities are also an important source of collateral within the financial system.
Alignment of business strategy and risk appetite should minimize the firm's exposure to large and unexpected losses. In addition, the firm's risk management capabilities need to be commensurate with the risks it expects to take.
While monetary policy can contribute to growth by supporting a durable expansion in a context of price stability, it cannot reliably affect the long-run sustainable level of the economy's growth.
One factor that favors easier adjustment in EMEs is that U.S. monetary policy normalization has been and should continue to be gradual, as long as the U.S. economy evolves roughly as expected.
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.
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.
The United States has never prioritized or failed to pay any obligation when due during a debt limit impasse. Despite the institutional risks and the lack of clear legal authority, we assume that Treasury will attempt to prioritize payments in a last-ditch effort to avoid default.
Loss-absorbing capacity among banks is substantially higher as a result of both regulatory requirements and stress testing exercises.
The financial crisis involved significant failures in the functioning, regulation, and supervision of OTC derivatives markets.
An increase in the debt ceiling should be accompanied by fundamental policy reforms, substantial budget savings, and a strong enforcement mechanism to tie the hands of any future Congress.