##ilience, the changes in the credit markets that are the subject of your conference have also provoked some concerns and unease, even among those on the frontier of innovation and the most active participants in these markets. these concerns are based in part on uncertainty - a candid acknowledgment that there is a lot we do not yet know about how these instruments and the increased role of nonbank institutions in these markets will affect how the financial markets are likely to function in conditions of stress. or to put it a bit differently : this concern comes from an awareness of the formidable complexity of measuring the scale of potential exposure in many of these instruments, and it comes from an awareness of the difficulty in anticipating how changes in credit market structure are likely to affect the behavior of financial market participants and market liquidity across a wide spectrum of financial and macroeconomic conditions. the velocity of change itself would not be particularly interesting if the scale of exposures involved were still small, but this is not the case today. credit derivatives, although still only 7 percent of estimated total notional over - the - counter ( otc ) derivatives contracts, generate a significant fraction of total counterparty credit exposure. the direct counterparty credit exposure in otc derivatives is quite large relative to the capital cushions of the major banks and investment banks, and relative to more traditional forms of credit exposure. further, these exposures merit more attention because they may be harder to measure than those in the more mature interest rate and exchange rate derivatives. the underlying economic exposures involved are harder to assess in part because of the complexity of the instruments, the embedded leverage in many products and the difficulty of estimating correlations across different exposures. for these reasons, the risk individual dealers attribute to exposures involving some types of credit derivatives exhibit a very large variance, substantially larger than one would typically find in measurements of traditional credit exposures. that variance illustrates the magnitude of the uncertainty involved in capturing the direct exposure in these markets. but perhaps the more difficult challenge is to capture the broader risks the institution might confront in conditions of a general deterioration in confidence in credit and an erosion in liquidity in these markets. this task, which is the province of stress testing and analysis of very low probability but extreme scenarios, is, of course, fundamentally difficult. the analytical challenge is magnified by the inherent difficulty in predicting how behavior changes in crisis, that is, how investors and counterparties would react to actual losses and the fear of future losses. this

chicago in early june, we heard from prominent academic economists as well as national and community leaders. our fed listens events have provided us with a valuable perspective on the labor market that could not otherwise be gleaned from aggregate statistics ; these events have also offered insights into how the monetary levers we pull and push affect communities, credit availability, and small businesses. last summer, the fomc began to assess what we have learned at the fed listens events and to receive briefings from system staff on topics relevant to the review. 20 at our july meeting, fomc participants agreed that our current framework for monetary policy has served the committee and the u. s. economy well over the past decade. fomc participants noted that the committee ’ s experience with forward guidance and asset purchases has improved its understanding of how these tools operate. as a result, the committee could proceed more confidently in using these tools in the future if economic circumstances warranted. however, overall, we judged that forward guidance and balance sheet tools, while helpful, did not eliminate the risk of returning to the elb. information about the review and the events associated with it are available on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / review - of - monetary - policy - strategy - tools - andcommunications. htm. see board of governors ( 2019 ). - 10 at our september meeting, we discussed makeup strategies in the context of a lower neutral policy interest rate, a reduction in conventional policy space, and a higher likelihood that future economic downturns will involve a return to the elb. we generally agreed that our current monetary policy framework is flexible enough to allow the committee to choose the policy actions that best support our dual - mandate objectives in a wide variety of economic circumstances. our discussions will continue at future meetings. in particular, we have not yet begun to consider potential changes to communication practices, including the committee ’ s consensus statement on longer - run goals and monetary policy strategy. the statement has helped articulate and clarify the federal reserve ’ s approach to monetary policy, and we have agreed that any changes we might make to our strategy would likely call for some modification of this consensus statement. we will continue to report on our discussions in the minutes of our meetings and share our conclusions when we finish the review, likely around the middle of next year. concluding thoughts the economy is constantly evolving, bringing with it new