governors of the federal reserve system, federal open market committee reaffirms its " " statement on longer - run goals and monetary policy strategy, january 25, 2022. 2ruchi avtar, rajashri chakrabarti, and maxim pinkovskiy, " was the 2021 - 22 rise in inflation equitable? " federal reserve bank of new york liberty street economics, june 20, 2022. 3 federal reserve bank of new york, global supply chain pressure index. 4 board of governors of the federal reserve system, federal reserve issues fomc statement, september 21, 2022. 5 board of governors of the federal reserve system, federal reserve board and federal open market committee release economic projections from the september 2021 fomc meeting, september 21, 2022. 6 board of governors of the federal reserve system, plans for reducing the size of the federal reserve's balance sheet, may 4, 2022. 7 board of governors of the federal reserve system, federal reserve issues fomc statement of longer - run goals and policy strategy, january 25, 2012. 8 federal reserve bank of new york, survey of consumer expectations. 4 / 5 bis - central bankers'speeches 5 / 5 bis - central bankers'speeches

. even with the broad shift globally to more flexible exchange rates, a substantial part of the world economy now run monetary policy regimes targeted at limiting the variability in their exchange rate against the dollar, or a basket in which the dollar plays a substantial role. sustaining that objective in the past several years has required a large accumulation of dollar assets. the scale of this activity has been particularly dramatic in parts of asia. the significant rise in the earnings of the energy exporters, many of whom also run exchange rate regimes that seek to shadow the dollar, has also generated a substantial rise in investments in u. s. assets. a large share of the capital flows to the united states that have financed our current account imbalance come from these official sources. these flows add to other sources of private demand for u. s. assets. at the margin, they put downward pressure on u. s. interest rates and upward pressure on other asset prices. through this effect, the monetary policy regimes that prevail in parts of the world help explain at least part of the persistence of these anomalies. recognizing that we live in a world where major exchange rates do not move freely against the dollar, means that the dollar is not as flexible as we tend to think. and understanding that the effort to sustain these exchange rate regimes has required more expansionary monetary policy in those countries than would otherwise have been the case helps identify a substantial source of what market participants describe as very ample liquidity in world markets. the size of this effect is difficult to estimate with confidence. the economies that are the source of these flows are in aggregate a substantial part of the world economy, and the collective flows from official sources are probably large enough to have some impact on u. s. interest rates. research at the federal reserve and outside suggests that the scale of foreign official accumulation of u. s. assets has put downward pressure on u. s. interest rates, with estimates of the effect ranging from small to quite significant. what does this mean for policy? here are several implications. first, this pattern of exchange rate and monetary policy arrangements and the associated scale of official intervention in markets complicate our ability to assess the underlying economic conditions in our economies and to forecast the future path of output and inflation. if the effects of these policies are large enough to alter or distort the relationship between asset prices and the underlying fundamentals in our economies, and this seems likely to be the case, then we can take less comfort from