As prepared for delivery Date accessed: October 29, 2018  “U.S. Monetary Policy Normalization is Proceeding Smoothly” Remarks by Simon M. Potter Executive Vice President Federal Reserve Bank of New York at Banque de France Paris, France October 26, 2018  Thank you for the invitation to participate in today’s discussion about post-financialcrisis monetary policies. 1 My remarks today will focus on the implementation of monetary policy normalization. 2 The Federal Open Market Committee (FOMC) has carefully developed and articulated a clear and transparent normalization strategy and is implementing that strategy. This approach has instilled confidence—a key to maintaining market stability, which has supported the orderly functioning of the broader set of dollar money market rates that are important to policy transmission and financial conditions. 3 Against this backdrop, the FOMC has increased the federal funds target rate from the 0 to ¼ percent range that had been in effect between December 2008 and December 2015, to 2 to 2 ¼ percent at its last meeting. Additionally, since late last year, when the Federal Reserve began a program to reduce its securities holdings by reinvesting principal maturities only to the extent that they exceed gradually increasing caps, the FOMC has reduced the size of the portfolio holdings from nearly $ trillion to about $ trillion. 4 Notably, this month, the principal payments from the agency mortgage-backed securities (MBS) portfolios are below the level of the redemption caps.

The economic upturn is broad-based. At the beginning of the recovery, activity was primarily fuelled by private consumption, traditional exports and petroleum investment. In addition, growth in mainland fixed investment has gradually gained considerable momentum. Monetary policy easing and low inflation have resulted in strong growth in household real disposable income. Private consumption and housing investment have risen sharply. House prices have continued to rise. Debt growth remains high. The economic upturn has continued this year. High petroleum investment, the international upturn and higher commodity prices have boosted production and earnings in the manufacturing sector. Statistics Norway’s business tendency survey points to continued favourable prospects for Norwegian manufacturing. In service industries and the construction sector, continued low interest rates and strong growth in household demand are expected to result in a further increase in activity in the near term. Capacity utilisation in the Norwegian economy now appears to be close to a normal level. In manufacturing, capacity utilisation has been close to its historical average. According to Norges Bank’s regional network, about 40 per cent of enterprises will have some or considerable difficulty in increasing production. The situation in the labour market does not indicate that substantial pressures are building up in the Norwegian economy as a whole, even though growth has been high for a fairly long period. So far, the rise in the number of employed has been fairly modest in relation to output growth. This may be due to lagged effects of the sharp fall in sickness absence through 2004.