Although the appreciation of the dollar is likely to cause some further softness in import prices, the continued decline in resource slack as the economy expands should push in the opposite direction. In addition, longer-term household inflation expectations have been well maintained through this period of very low inflation, as indicated by our Survey of Consumer Expectations. The combination of stable expectations and declining slack should push inflation slowly back towards the FOMC’s objective. Monetary policy As the FOMC has consistently communicated, the timing of lift-off will depend on how the economic outlook evolves. As I have discussed, the labor market has improved substantially and I expect to see inflation begin to firm later this year. If this labor market improvement continues and the FOMC is reasonably confident that inflation will move back to our 2 percent objective over the medium-term, then it would be appropriate to begin to normalize interest rates. At the March meeting, the FOMC removed language from the statement that indicated that we would be patient in beginning the process of normalizing monetary policy. But, as Chair Yellen remarked in her most recent press conference, removal of “patient” from the statement does not indicate that we will be “impatient” to begin to normalize monetary policy. Rather, the timing of normalization will be data dependent and remains uncertain because the future evolution of the economy cannot be fully anticipated. Whenever the data support a decision to lift off, I think it is important to recognize what this would signify.

Capital markets thrive on breadth and depth; and the broadest and deepest markets are those that transcend national boundaries. Companies raising funds seek liquid markets, which attract investors and lower the cost of borrowing. So it is that many Asian companies issue bonds in the Euromarkets, and technology companies worldwide aspire to be listed on NASDAQ. Investors in turn seek liquid markets, because in rapidly changing conditions, the ability to move in and out of markets at minimal cost is critical. BIS Review 50/2001  1  Fourthly, as a result of globalisation, small differences in conditions can translate into large differences in outcomes. Market participants have always placed a premium on sound and responsive regulatory systems. They seek jurisdictions that provide stable and resilient financial systems, and fair and efficient markets, at minimal regulatory cost and impediment to innovation. They prefer conducive business environments which offer good market infrastructure, favourable tax treatment, and stable economic and political conditions. And talent has always preferred attractive living conditions. They value good schools, safe homes, clean environments, vibrant social and cultural activities, and competitive remuneration. In the New Economy, both financial capital and talent have become more mobile. More open financial markets and more liberal regulatory regimes have enabled institutions to choose where to reside and operate. Countries have realised that people are the key success factor in the new economy. They have opened their doors wide to the immigration of talent, and created a single global market for those whose skills are in demand.