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>> next year from the chair of the financial stability board on global financial issues. this event was hosted by the peterson institute for international economics. >> good morning everyone and welcome back to the peterson institute it's our pleasure today to be hosting a virtual speech by randall cape coral, chair of the financial stability board and vice chair for supervision of the system will introduce randy more properly and a moment. long and distinguished career in u.s. treasury and federal reserve. as well as his private financial market. first, i just want to orientan this talk to it we are calling macro weaker march macro
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madness here at the institute. yesterday we had the privilege toto host the first public speech by doctor christopher waters with the florida governors federal reserve or spoke on issues of central-bank import to kelly about emergency measures in the crisis. and how the interaction between treasury and the federal reserve should go through the main message being there will not be consideration of financing issues by the federal reserve. tomorrow we are privilege to have as much or more, not to compare anybody but just very excited tomorrow and wednesday march 31 at 10:00 a.m. washington time for a major speech of central-bank currency. mr. carson's or should say doctor former governor carson's general manager of the bank for international sediment the distinguished academic career and long service as the governor of the
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bank of mexico. the make close macro week on thursday april 1 at 10:00 a.m. the institute for economic prospects meeting which many of you know is a semi annual events, coordinated and led by our colleague, former assistant secretary of the treasury for economic policy. and now a non- resident senior fellow as well as a professor of practice at harvard university. i am delighted now today to welcome honorable randy corals. some electric in his bio right think i remember it all. randynd took federal reserve system october 13, 2017. he was sworn in as vice chair first supervision on thehe same day in the term as vice chair of supervision and october 13, 2021 although his term as a member of the board continues for much longer.
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importantly in the world and importantly for today's talk is to corals as part of the stability board and took over that office for a three-year term. the financial stability board of international body that monitors global financial system. it also coordinates national financial authorities and international standards is a worksla towards supervisory and other financial sector. prior to his plummet to the federal reserve board mr. corals was previously very successful career as a partner private equity firm based in washington d.c. from the first term of president george w. bush, mr. quarles served in a variety of senior rolls in this including undersecretary the department of treasury and finance and the system
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secretary of the treasury for international affairs as well the director. previously in the early '90s he served the treasury just apartment of banking legislation. [inaudible] treasure for financial institutions, you can all go back and find on the web the pictures of jay powell and mr. quarles 30 years ago testifying in front of congress. and now they are federal reserve is absolute critical. mr. quarles is also assumed, sue martin graduate of columbia law degree at gayle. so let me now turn my friend and calling the chair of financial stability board randall k quarles. randy. you are muted randy.
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there you go. >> sorry, the mute button was missing on my screen for a moment, sorry about that. and thank you, thanks adam for that introduction. it does not leave much time for the speech. but thank you for that very generous introduction. it's an honor and a pleasure at the peterson institute driven much of the most important economic history over my entire working life. i've always been engaged with it. i only wish we could all be there in person. so perhaps soon. a little over 420 years ago a crowdpleasing local poet on the lightly populated island in the north atlantic made popular phrase that is entered our language. beware the ides ofde march.
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caesar ignored the soothsayer and the results were not good. if recent history is any indication maybe we should keep that warning in mind as well. in march of 2008, we witness a significant domino fall in a chain of events that sparked the global financial crisis. parts the following air the dow jones average margin calls 2020 or significant echo of the other ides of march for settling debt. financial history.y. in fact at this time lester both domestically and internationally the financial regulatory committee fortified itself isfi covid-19 and related containment measures spread across the globebe which i referred to as the covid event. the stability board moved into high gear only weekly, usually
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daily meets on the senior readers of finance industries, market regulators, to share information to shape the synchronized global approach to the financial stability challenges atnas hand. this ability to spring into action on short notice is exactly what has to be established in thehe wake of the great financial crisis. it's a mandate with financial stability by corneille the development of regulatory supervisory and other financial policies and actions on a global level reflected the recognition of the growing interconnectedness across the economies.i i focused today will be on the future. and the challengesfo we face going forward. in particular, non- bank financial oria an bfi these are only a portion of the comprehensive workplan but their priority areas that have significant impact on the financial landscape going
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forward. soen since the crisis of 2008, the non- bank sector has grown considerably. it counts now as you know for almost half of all global assets. and did so the start of the covid event. with this growth has come greater interconnectedness thete complexity in change. even before the market turmoil last march the need to understand the vulnerabilities arising from the non- banking sector as well as those from the banking sector as well as those who have moved outside of the banking system was viewed as critical of achieving financial stability. the march market turmoil help focus our turmoil on non- bank financed and pushed to give further priorities to work in this area. because of the weight this diverse scepter is structured, developing and an bfi perspective requires bringing together regulatory, supervisory and markett
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perspectives and taking a broad view of how our financial ecosystem works. so, even ahead of the covid event in my role of the fsb, i formed a high-level group of central bankers and market regulars to oversee in coordination of fbi pride which by march was clearly a fortunate decision. under the direction of the senior group, the fsb carried out his holistic review of the march market turmoil which examine not only how different sectors of the market were affected, but also those effects were transmitted throughout the system. in which aspects of the financial system structure may have amplified the stress. holistic view underscored how vulnerabilities amplified the coveted. in particular it highlighted the dependence of the system on a readily available liquidity. invulnerability and liquidity strains emerged. and money market funds and open ended funds, to margin calls and corbel bond markets but importantly the holistic
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review was a high-level view on how these parts operate entrance mitt risk or under stress. my view of the significant findings relates to money market. the holistic review documented how the extremely high demand for liquidity combined with flight to safety triggered a -- for cash institutional money market funds particular hard. in the united states prime money market funds outflows of $100 billion, 30% of the assets over 2 weeks in mid-march. this was a faster ride in terms of the percentage than during the turmoil of 2008. similar patterns were also seen in europe, particularar for u.s. dollar denominated funds but other funds are active in short-term funding market such as bond funds, also saw unprecedented outflows in march.
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the march market turmoil is a second time in roughly a decade that we have witnessed destabilizing runs on money market funds. more concerned this time however, is that we have taken steps between these events precisely to reduce the likelihood of such runs. the fsb will public a report in july the set up consequential policy proposals to improve money market fund resilience. the proposal should also reduce the likelihood that government intervention in taxpayer support will halt for the for this work also consider the relationship ship on fort term funding markets with particular focus on paper continued work gave liquidity come on the heels the focus bit under enhancing our folder
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abilities including a risk transmission challenge. addressing systemic risk in a genomic sector that continues to evolve as no small feat for expect policy related discussions and recommendations if all the analytical work and that will likely extend beyond this year. although we do not really have time this morning for me to it provide deepli detail, i would like to note the disruption and bond market also raise questions about leverage investors, and the willingness and capacity of dealers to intermediate times of stress but work is an 8 to gather data and analyze behavior to develop a comprehensive view of impact market functioning and to determine whether policy responses are necessary during to different article in the march market terminal demonstrates the benefit central clearing blinks with global financial stability.
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giving their systemic importance as set out in our 2020 resolution report. so, i am coordinate with chairs of the committee on payment and market infrastructure, the bias the international organization securities andss the fsb resolution steering group on shaping these details. it's aimed at further strength the resilience and resolve ability on the non- default loss. including assessing new types of resources will be necessary for resolve ability. the fsb and other standard-setting bodies have also begun work on large activities essentially cleared and nonsenseno required markets in the peak of marketability lester. they observed margin calls l by some may have been larger than active.
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obvious that we need to ensure they are sufficiently margin their critical nodes in the financial system. they need sufficient transparency and predictability to manage their exposures. to be successful, this long and comprehensive agenda the source of the cornerstone of the 2021 and beyond require strong coordination commitment and resources of the international regulatory community including other standard-setting bodies. picture sound effective board making engagement among the public. the fsb is therefore seeking input of market purchase funds and other parties. this work alone is being ambitious agenda. it's well-equipped to address challenge also furthering the other important elements of a broader agenda part let's talk ofetime about number
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important agenda switches enhancing cross-border payments. in 2019, the enhancing cross-border of payments is a key priority for the fsb is then dedicated to advancing this important work ourselves. the challenges associate with payments are widely long-standing. and prior attempt to make improvements and struggle to gain caption. in october of 2020 the fsb began a multi- roadmap to the g20 leaders who endorse the way forward and commit to advancing meaningful change increasingly cross-border payments. ultimately, more focus on addressing the core challenges of cost, speed, accessibility and a transparency. i goes without saying that making improvements is easier said than done. frictions underlying processes spent multiple legal, technological structural issues. and those can differ greatlyre
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by region. such a break in the magnitude of our task, the roadmap includes a set of practical app actions to address specific topics over referred to as building blocks. we are taking a comprehensive approach gauging the public and private sectors because both need to be partt of the solution we are going toe achieve the mission schools reset for ourselves. so to begin we have to decide with the act proven thriller that we went to see and how we will monitor progress in achieving them. these decisions will define the level ambition, create accountability and shape of the roadmap is put into operation at the global, regional, and national levels. the first staff the fsbth is a task force responsible setting specific quantitative targets for these targets will set the tone and patient follows for therefore among the most important of the deliverables that we will complete this year. we plan to have a consultative paper in may and deliver a final set of targets to the
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g20 and arctic. several groups 1 or more of the building blocks in the roadmap over the course of this year for the fsb providing annual updates to the g20. we are collaborating close of the committee on payments and ommarkets infrastructure the international sediment source has a key role given the position of central bank in them payment ecosystem. in addition to setting targets, the fsb is leading m multiple elements of itself advancing building blocks and more exploratory nature for example then soundness of arrangements this particular topic last year the fsb issued recognitions for the regulation, supervision and oversight of global stable coins and will report on progress achieved both international and national levels. either nature cross-border payments are global they involve many other countries outside of the g20 measures. we have to be inclusive in our
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approach will remaining well organized to meet the milestones except for ourselves but to that and we part the world bank it with ims. given their respective mission the globalal reach. the financial situation, service providers, practitioners academics as we advance hiser work. we plan to communicate information and seek feedback to public consultation, conferences about federal outreach. the road map is our path in action by competing stakeholders to achieve sick excess. purposely built into the roadmap opportunistic course correct because we expect to learn more as we go. the fsb will report a note to the g20 summit and to the public showing progress and seeking confirmation on the next steps. the >> sleep important ongoing work. so what i just discussed cover salt 1 fourth fsb workplan i would be remiss if it did not
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mention some significant areas but we are course content to closely monitor vulnerability stemming from the covid event including the rise in nonfinancial sector debt and measure the bond and equity evaluations. in april, the fsb will report on key considerations involvedhe in amending or aligning covid support measures as appropriate. the fsb will play an important role once measures begin, given its work to support international information shared in covid response. we also have a initial lessons learned for financial stability. and to share this with the g20 in july. the covid events underscore the financial sectors assess ability to operate the risks pretty special those religiousth cyber security. the speed of technological change and a growing reliance on third-party technology-based services is increasingly introduced new risk and vulnerabilities to the sector.
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begin to address this, the fsb is focused on f achieving greater virgins in areas such as regulatory reporting and cyber incidents i will deliver those recommendations to the g20 in october. r next month the fsb will release the final reports of his ambitious evaluations of the effects of the great financial crisis theat report on too big to fail reforms are the most analytically rigorous evaluation carried out to date. one look at these reports and systemic risk and moral hazard, moved in the right direction and seem to brought net benefits for the beginning of the covid event we reserved a farmer resilient banking than that which had the 2008 crisis for the benefits of the too big to fail reforms are to be fully realized the remains for their work to doo pretty outline this work in the forthcoming evaluation. further analysis international standards agreed g20 fsbsb
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commitments, and other initiatives we will provide better insights into whether the packager form are working as intended or conflict with our structured efficiently and they are in need of refinement. one lastt particular item to mention, transitioning away from my board is a significant undertaking the fsb has been engaged in for almost a decade. the fsb set for the roadmap for clear action of financial firms and our clients take to ensure a smoothh transition away, i'm this sure the fsb report to the g20 and ongoing progress and issues related to the transition period including supervisory issues related to the benchmark transition. we say it's a confluence of events over the past year that demanded international coordination in several key areas for that is precisely where the fsb was created more than 10 years ago. a beacon at the end of another faithful march. the span of territory and topics covered can seemin
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bewildering at times i'm sure it did in the overview i've just given and i covered only few of them today. it is the fsb and builds its for each coming year, the processes each topic by itselfex is a series of complex data points. i'm stepping back we see the connection in the interdependence of the various elements. the role of the fsb is to orchestrate a unified and coherent approach to ensure that we monitor and address those hazards shape and form of which we've already identified while allowing for things like the covid event would arise with little notice and require extra space in the canvas. little margin achieving our objectives is the utmost in diplomacy and rigorous analysis. invite all the challenges we face over this extraordinary year i am proud of my colleagues in the fsb have done. my fellow public servants around the globe working on fsb topics have been steadfast
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in the daily pursuit of the unified mission to promote international financial stability per think the work laid out for 2021 does just that. thanks. i'll be glad to take any questions whether in fsb issues or federal reserve issues, or anything else you have in your mind. thank you. >> thank you so much randy pritt as you said, you as chair of fsb with your colleagues around the world are dueling with an incredible range of leaves the term bewildering topics and technical issues. as a former central banker it's a little tough going for me. i'm going to ask you this go back some things and explain more. in particular let's start with you mentioned the fsb has a report coming on bank financial intermediation. you use disparagingly as shadow banking.
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what can you tell us about ideas of activities based versus firm based or institutional -based regulation? especially as you said there is this constellation of different entities in the same space effectively. they're taking out more and more of our financing but they're very differing in nature. how do you see that issue? >> i think that is a great question. there have, over the years, been among folks who think about financial stability policy, academics policy makers, many. there has been skepticism expressed about the objectives and worth of the activities based approach. if you look at the fault lines that were thrown into
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particularly in march of 2020 and the non- banking sector, i think it emphasizes it was not that there was any particular globally systemic behemoths. the failure of which we were concerned about potentially triggering further instability that we could have prevented that behemoth been designated in advance. rather there was a network of activities being conducted by many players. none of which were probably systemic in and of themselves. but the activity clearly was systemic. i think that it emphasizes particularly in non- bank finance and activities based approach is going to be necessary. perhaps in some cases supplemented with entity designation. but principally it's a
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focusing on the activities in the interconnectedness of many individually non- systemic players is going to be needed to have a picture of eddie response to potential instability in the nonbanking sector. suit. >> thank you. and certainly the side of that is, iks was going to ask before your remarks is, it looks like the traditional banking sector has weathered this particular march and last march reasonablyh well. so without asking you to compromise security on the forthcoming analyticalcu report, what do you think was different this time? how much you think is regulatory and supervisory changes to thousand 8 that made a difference? in particular you'd mentioned the idea that it does too have been some beneficial effects on moral hazard.
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to understand those concepts are not supervisors, how can you tell? >> in some ways the proof is in the pudding. i mean the banking sector was a source of strength in this crisis. we took some measures at the outset because of the high level of uncertainty and because this was the first real test of the post- financial crisis system if you will. we took some additional measures on top of those of the system itself would have required. i am referring specifically to the limitations we put on return of capitol from banks during the crisis itself. but it is clear that was a wise thing to do given this was the first test. and given that it was a world historical event that we were
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facing. but you had a system that was strongly enough capitalized that even when it took really quite dramatic reserves in the second quarter which was the size of those reserves in fact was an accounting modification in the wake of the crisis. they took very large reserves under the methodology were their best estimates of the entire loss they could be expected to take. they still remain very highly capitalized those reserves into capitol. indeed their capitol grew over the course of the year notwithstanding the very large reserves. i think the key reforms capitol and liquidity that required institution but think the wisdom of that was born
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out in the strength of the banks in the crisis. i would say as well there has been some handwringing sounds excessively dismissive let's put it in the language to say there have been appropriate questions asked about the modifications. the refinements and recalibration's we have been doing in the unitedhe states over the last 3 and half years to that post crisis framework. we said that we intended to do that in order to improve the efficiency without undermining the resilience of the system. i think again the performance of the system in this very strong test demonstrated we did not. xo in that sense there's part of the capacity of congress with the fed built in, there is a countercyclical buffer. was this a deaf active use of this? are there periods in which legally not legally, because
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that's what's been used so far officially. when does it come into play? >> so that's an interesting question which covid event itself is caused my views to evolve somewhat. in the united states at least, we had, our capitol livers are very high. the way i took to framing that issue went effectively we turned our countercyclical buffer on because her capitol levels are really the highest in the world. in our problem is going to be turning it down. turning it down in a time of stress because we've done that through calibrating the cycle measures as opposed to a countercyclical buffer on top of it because every time we
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looked at the situation as what we have had enough capitol we should not be increasing capitol further at this point. i think that's exactly how it plays out. we had to take some measures in order to ensure in order to help ensure proper market functions such asma the changes are made to the supplemental leverage ratio which were elhelpful there. that serve the function of, it was a quasi- turning down of a countercyclical offer if you will. had we been in a position where the cycle capitol levels had been lower and we had turned on that buffer and then been able to turn it down. as was the case in many other jurisdictions. the reason i i say my thinking has evolved is that when you look at some those other jurisdictions that were in a position to had turned on their countercyclical buffer
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going into the stress and then turned it down, crating the space those constitutions to continue to land the crisis it is atopic on the international agenda but the agendas looking at them are interested in the use of capitol buffers and buffers in general in a period of stress. they buffered up and down the capitol buffers to expand lending. thanks so go back to normal quickly the market will punish us if we do that led this
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framework really should be that effective. didn't run into that issue not significant problem from borrowers. excess demand that mother might've been this very to millis terms of the lending support. might've run into the issues here were wrestling with that, that is more color around the countercyclical buffer and is it really going i to be an effective tool going forward.
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thank you for explaining that. were not going to quite to a lightning round their cellmate topics 1 thing about the crisis a year ago that advised the new york feds with a different set of different things the huge success in preventing liquidity problems is anything at the fsb to think about build out that institution to make it more sort of regular i don't mean more frequent, but less ad hoc in its usage in the future. or is this something you worked beautifully and you're happy with it.
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i mean, how to build on the success? >> it's not really a topic fsb currently pert although i agree with you it was critical to be maintaining global financial but punch in -- and we are always look at ways to improve the efficiency of what we do. i myself at least think that we have seen the use of the swamp line about the crisis of 2008 and march of 2020 worked pretty well. so institutionalizing i would say is does not need to be a high priority for us because it has worked pretty well. and we have been able to roll it out pretty quickly particularlyly in 2020. so i guess i'll just leave it at that.
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suspect turning it towards the monetary sphere, maybe you should comment on the issue of central bank digital currencies for the 2 largest or arguably the largest on the dollar, people think of china your area are both doing prettyoi out there public intense to develop their own central bank. digital currencies that is not governor brainard spoken on this issue. tomorrow central bank digital currencies with their financial stability and hat on at the fsb and at the fed, how do you view central banks stepping into this realm?
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>> i think that, let me think about this mostly from the fed point of view in my position as a governor, i think that is something that technological development is something we should be on top of. we should certainly be looking at the fed. i think we have to be clear in doing so that we have framed the issue we are trying to address with central bank digital currency. i do think that and a lot of the efforts globally, to look into this issue the fundamental question of what are we trying to do with this is not clearly answered. and i think the benefits in a country like the united states
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they certainly, they may exist. and we should be actively looking into them. but i do not see an urgent flaw in our system that the central bank digital currency would fix. spare. >> and just going to press you a little bit on this on my own personal views are similar to what you just said. there is a concern which are colleagues whispered in my ear, and harold james has raised among others that if we start having very solid central bank currencies that could suck money out of or fragile currencies in developing countries. again, and a sense that is not nearly you're missing as the fed it seemed like it is something to at t least consider.
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is this a topic you worry about it all? does this come up in youror discussions? >> think it is atopic estate relevant topic it's a relevant issue to consider in the broad range of issues to be considered. obviously i think our primary concern has to be the usefulness and benefits as well as disadvantages and cost of digital currency for the united states principally. but we are not unmindful of the potential consequences those are for other countries but those are for s the financial system itself of the financial system and what this consequences of that might be.
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the shared understanding of what exactly they are trying to achieve. i don't think that is clear or shared yet. >> thank you for being frank. coordination among the regulation they'd cut back a lot it seems on is it a priority to rebuild i that? or is it when the work when it push comes to shove in the not
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going to worry about? [inaudible] >> doesn't interesting point that i had not even really focused on that. so, i think that the can be a useful mechanism, it's a particularly useful mechanism for, and i support whatever direction secretary yellen wants to take it in. i suspect she will be more active or it will be more active or take on perhaps a broader range of topics. i think it can be very useful. think it is particularly useful in peace time. just the nature of the organization is very large of all the people around the table and fills the
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secretaries large conference room at the very large room. you got a lot of, there are lots of folks there with varying levels of engagement on particular crisis actions. so, and a time of crisis i don't know that an entity like that is really a crisis management mechanism. there's going to be a lot more -- that's going to depend a lot more on bilateral agency to agency action. : : e core group of agencies :.
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>> thank you. final question. you have coveredsin so much. as part of your day job so one question of your views on the policy? >> you and your co- committee members announced a new
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strategic framework for military policy at the end of august last year. so could you as the fomc voter how does the new framework imply as you consider raising rates at some future date? how do you look at that differently? also one more thing. how is it credible that the committee will allow and overshoot of the 2 percent target? with a t credible commitment from t the committee? >> there were a number of things they are so let me take them all. and i will take them in order.
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the framework does change how i at least will respond, i am the optimist on the committee very optimistic about the likely evolution of the economy over the coming years. probably the near term as well but certainly over the coming years of the horizon. and under the prior framework, that level of optimism about the outlook for the lower unemployment rate as well as other views that i have about the possibility of the likelihood over the coming decades over the previous decade would argue moving
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sooner rather than later to draw accommodation under the framework. under theew new framework, and optimist like me and i think this is right, under the new framework the fact that my projections are optimistic o and that i would project to the unemployment rate will fall pretty quickly and substantially word argue for that now. i'm sorry that the old framework under the new framework we would wait to see that actually comes down the fact i am an optimist isn't even relevant under the new framework. it says he will get to the point where we see the outcomes sooner than others
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but we shouldn't jump the gun. in clearly the performance of the monetary policy over 1520 years word argue that leads to superior outcomes. one of the major achievements of janet yellen as chair of the fed and i was very skeptical of this. wasn't on the fed board at the time but allowing the unemployment rate to fall as low as it did and continue to fall as low as it did to be quite gradual about raising interest rates and we saw the benefits to the labor market doing that. we did not see inflation there were many more people particularly with the lower echelon of the labor market drawn in and benefited from
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that stance. i'm very supportive of the new outcome based framework. and that would be true of the committee. it's very credible for the committee to expect to be comfortable with inflation at a 2 percent target. i myself don't believe we need a mathematical equivalency to go three years below and then three years above by 20 basis points. and the framework doesn't state that mathematical averaging but over time we will look to average. and that's a very critical commitment from the committee.
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i am certainly supportive of it and i'm the biggest optimist on the committee. >> vice chair of the financial stability board, thank you so much for your depth of knowledge and sharing your insights with us and you years of service thank you for being with us at the peterson institute. >> thank you for having me. >> the meeting is adjourned

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