These two findings militate in favour of a more comprehensive policy framework for governing financial stability in Europe, which should comprise in my view the following. First, the full implementation of the economic governance reform, which is presently under discussion. It is unquestionable that a sound and credible framework of economic governance is fundamental for financial stability, as, for example, public debt developments have demonstrated. Second, a strengthening of financial supervision in the euro area. This should be understood as an essential component for the overall effectiveness economic governance alongside the strengthening of the fiscal pillar, the surveillance of macro-economic imbalances, co-ordination of economic policies, and the European Stability Mechanism. I will organise my remarks today as follows. I will begin by examining how the crisis unveiled the shortcomings of economic governance in what regards in particular the channels through which financial instability can propagate in the euro area. I will then propose what should be, in my view, the five key components of financial stability governance, highlighting in particular the necessary euro area dimension of such governance. Economic governance and financial stability The crisis provided some important lessons for economic governance in the euro area – lessons that were not fully understood at the inception of EMU. BIS central bankers’ speeches  1  The first lesson refers to the sources of financial instability in the euro area. Euro area economic governance had been constructed primarily to prevent negative spillovers via the public finance unbalances and we learned that this was not enough.

FOMC Actions Against this backdrop, the FOMC has taken decisive actions to curb demand, restore balance to the economy, and bring inflation down. Last month, the FOMC raised the target range for the federal funds rate to 4-3/4 to 5 percent, its ninth consecutive increase. In its post-meeting statement, the FOMC said it "will closely monitor incoming information and assess the implications for monetary policy. "4  2/4  BIS - Central bankers' speeches  The Committee also said it "anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time." According to the median projections in the FOMC's March Summary of Economic Projections, the stance of monetary policy remains restrictive this year and next year.5 In addition, the FOMC said it will continue to reduce its holdings of Treasury securities and agency debt and agency mortgage-backed securities, according to the framework announced last May.6  Economic Outlook Because of the lag between policy actions and their effects, it will take some time for the FOMC's actions to bring inflation down to our 2 percent target. With inflation expectations well anchored, I expect inflation to decline to around 3-1/4 percent this year, before moving to our longer-run goal over the next two years. Turning to GDP, the data flow for the first quarter indicates that the economy continues to expand at a solid pace.