the role of monetary policy so how can the federal reserve address these challenges? let me start with monetary policy. congress has directed the federal reserve to use monetary policy to promote maximum employment and price stability. the federal reserve ’ s primary monetary policy tool is its ability to influence the level of interest rates. federal reserve policymakers pushed short - term interest rates down nearly to zero as the financial crisis spread and the recession worsened in 2007 and 2008. by late 2008, it was clear that still more policy stimulus was necessary to turn the recession around. the federal reserve could not push short - term interest rates down further, but it could – and did – use the unconventional policy tools to bring longer - term interest rates such as mortgage rates down further. fed policymakers intend to keep interest rates low for a considerable time to promote a stronger economic recovery, a substantial improvement in labor market conditions, and see national community reinvestment coalition ( 2007 ), “ are banks on the map? an analysis of bank branch location in working class and minority neighborhoods ( pdf ), ” march. see federal deposit insurance corporation ( 2012 ), “ 2011 fdic national survey of unbanked and underbanked households, ” september ; and brian k. bucks, arthur b. kennickell, traci l. mach, and kevin b. moore ( 2009 ), “ changes in u. s. family finances from 2004 to 2007 : evidence from the survey of consumer finances ( pdf ), ” federal reserve bulletin, v. 95 ( february ), pp. a1 – a55. bis central bankers ’ speeches greater progress toward maximum employment in a context of price stability. both anecdotal evidence and a wide range of economic indicators show that these attempts are working to strengthen the recovery and that the labor market is improving. nonetheless, and again, the millions of people who would prefer to work full time can find only part - time work. while the federal reserve ’ s monetary policy tools can be effective in promoting stronger economic recovery and job gains, they have little effect on the types of jobs that are created, particularly over the longer term. so, while monetary policy can help, it does not address all of the challenges that low - and moderate - income workers are confronting. that said, the existing mandate regarding maximum employment requires policymakers on the federal open market committee ( fomc ) to understand labor market dynamics, which obviously must include an understanding of low - and moderate - income workers. regulatory and

economic progress has been below the desired level for a sustainable reduction in unemployment and poverty in sri lanka. sri lanka ’ s inflation has averaged 11 per cent in the post liberalization era. this has the adverse consequence of eroding the living standards of people, particularly vulnerable groups such as pensioners, other fixed income earners and the poor. supply side factors, including sharp increases in the price of oil imports, have contributed to cost - push inflation. sri lanka ’ s vulnerability to the vagaries of weather, and relatively low agricultural productivity have been causal factors. monetary management has been able to contain demand - pull inflation to a degree. the increase in inflation in 2004 over 2003 was perhaps typical - caused by a prolonged drought in certain areas of the country, a rise in international prices of key commodities, especially fuel, a somewhat higher growth in money supply and an increased budget deficit. investment and savings ratios have been moderate ; not sufficient to raise economic growth to the level necessary to improve the standards of living to the desired degree. investment improved in 2004 to 25 per cent of gdp. however, a level of about 30 – 35 per cent of gdp is required on a sustained basis over the next five to ten years to improve essential infrastructure, to promote a higher and regionally balanced growth. the external sector has been developing rapidly since 1977 with a significant degree of export diversification. external trade expanded considerably in 2004 with an increase in both exports and imports, benefitting from the fastest global economic growth recorded in the past few decades. trade deficits have been mitigated by increased worker remittances, and inflows from services, mainly tourism and port services. the flexibly managed exchange rate regime has helped to maintain sri lanka ’ s external competitiveness. throughout the post liberalization era, fiscal deficits have been high due to heavy public investment in the early eighties and high defence expenditure from the mid eighties until the signing of the ceasefire in 2002. this has led to the public debt rising to over 100 per cent of gdp, a cause for concern. recognising this, the government made a commitment to strengthen the fiscal consolidation process with the enactment of the fiscal management ( responsibility ) act ( fmra ) in 2002, designed to reduce the budget deficit and outstanding debt in the medium term. the economic policy framework of the new government emphasises the need to increase government revenue, in the fiscal consolidation effort, while maintaining an adequate public investment programme to improve the quality of the