Markets then responded favorably as EME authorities shifted toward clear, more consistent policies focused on inflation objectives and external sustainability, and away from policies with multiple and sometimes competing objectives. Let me now add a few thoughts about ongoing financial reform efforts. The complexity, severity and speed of the global financial crisis required a forceful and wide-ranging international regulatory response. This has included higher capital and liquidity standards, stronger recovery and resolution regimes for supervised institutions, and greater transparency and standardization in derivatives markets. These efforts will have a number of positive effects, although they may lead to some changes in bank business models and strategy in the U.S. and internationally. In the U.S., these efforts have made the banking system much stronger today than before the crisis. In aggregate, Tier 1 risk-based capital ratios among U.S. bank holding companies have increased to just under 13 percent, an increase of almost 45 percent relative to precrisis levels, and the quality of capital has improved. Bank holding company balance sheets are also significantly more liquid, with liquid assets increasing from 26 percent of total assets at end-2006 to 38 percent at end-2014. Core deposits now fund 44 percent of total assets, a 10 percentage point increase from pre-crisis levels. A stronger U.S. banking system better protects against future shocks, provides a more solid foundation for growth, and therefore also enhances prospects for growth and financial stability abroad. 3  “International Capital Flows: Reliable or Fickle?” World Economic Outlook, April 2011, Chapter 4.

Since the end of the Great Recession almost six years ago, U.S. growth has averaged a somewhat disappointing 2.3 percent. But growth has picked up recently, and the latest Blue Chip forecast is for growth to average slightly below 3 percent over the next year. There are good reasons to think that a period of stronger growth can be sustained. •  Household balance sheets are in much improved condition, with total household liabilities well below their 2008 peak, and debt service burdens at the lowest share of disposable income in more than 30 years. Moreover, consumers are benefitting from the positive wealth effect of higher house and equity prices. •  Labor market improvement has picked up pace, with payrolls gains over the last several months the strongest since the mid-1990s. Workers are finally beginning to see at least modest real wage gains. And the U.S. unemployment rate has fallen to the lowest level since mid-2008. •  The recent drop in oil prices is providing a significant boost to household spending power with nearly a percentage point increase to real disposable incomes. •  The housing sector is now in much better balance. The inventory-sales ratio for homes is near, or even slightly below, levels typically considered “normal,” and there has been a significant drop in the fraction of households carrying mortgage balances in excess of the value of their homes. •  The fiscal restraint that has held back growth in recent years has given way to a more neutral posture.