In any case, and despite the impact of external volatility on the prices of some assets, financial markets have operated normally. In this context, I would like to highlight the need to continue advancing in initiatives to strengthen our regulatory and supervisory framework. One such case is the bill to reform insurance companies currently being debated in Congress. The banks’ solvency and liquidity indexes have been stable in the first half. In a context of good rents, core capital has hovered around 10 percent while regulatory capital – as measured through risk-weighted assets – around 14 percent. Meanwhile, since the last Financial Stability Report the banking industry has increased its long-term debt certificates, and some medium-sized banks have pursued strategies to attract retail deposits. Another favorable development is the greater diversification of banks into different types of credit from abroad. Also worth noting is the hoarding of liquid assets in foreign currency. The stress tests presented in our Financial Stability Report show that the banking industry’s current capitalization levels allow it to cushion an episode characterized by a GDP slowdown, higher financing costs in local currency and an exchange rate depreciation associated with the materialization of the external risk scenario. As for household debt, it should be noted that, on aggregate, borrowing has increased in tandem with disposable income. This has translated into fairly stable aggregate debt indicators, whether comparing the debt level or financial burden with disposable income or the wage mass.

And even if we had more confidence in the forces behind past movements in asset values, we would still face substantial uncertainty about their future behavior. The relatively low compensation for risk priced into asset markets today does not necessarily mean the future will justify that confidence. This uncertainty surrounding the current behavior of asset values complicates the task of assessing the future trajectory of asset prices, and the impact of alternative monetary policy paths on asset values. And by widening the already substantial degree of uncertainty that surrounds estimates of the equilibrium real rate of interest, these developments complicate the task of assessing the appropriateness of a given stance of monetary policy against the objectives of the Federal Reserve. While the evolution toward more efficient and globally integrated financial markets is surely a positive for long-run economic growth both here and abroad, it also challenges policymakers to constantly update and question our understanding of the behavior of financial market indicators and the signals that these indicators can provide in the policymaking process. And as financial markets continue to broaden and deepen, the behavior of asset prices will play an important role in the formulation of monetary policy going forward, perhaps a more important role than in the past. What might this mean for the Fed and for other central banks in practice? There is a well established, and I believe fundamentally correct, case against directing monetary policy at specific objectives for asset values or the future path of those values.