tools may be. financial crises, when they occur, are unpredictable and diverse in nature. globalization means that a domestic crisis can become international or that a foreign crisis can become a domestic concern. the federal reserve ’ s ability to respond quickly and effectively to any particular systemic threat rests primarily on our experience and expertise with the details of the u. s. and foreign banking and financial systems, including our familiarity with the payments and settlement system. this expertise, in turn, has been accumulated over the years primarily through our supervision of large domestic and multinational banking companies, and via our participation in large payments and settlement systems which are such a critical part of our financial infrastructure. in order to carry out our responsibility, the fed must be directly involved in the supervision of banks of all sizes - - such as now provided by member banks - - and must also be able to address the problems of large banking companies if one or more of their activities endanger the stability of our financial system. this implies that the federal reserve have appropriate supervisory authority. moreover, the new regulatory structure must retain our flexibility to respond to changes in the structure of the financial system, especially where such changes cannot easily be forecast in the wake of significant legislative changes. systemic crises occur very rarely by their very definition. but when such crises do occur the consequences of slow or misdirected action are grave. the central bank, as the lender of last resort, must have the knowledge, the tools, and the authority necessary to act in a timely and decisive fashion. this is necessary to protect the whole financial system, not the least of which are the critical players among our community banks. conclusions let me conclude by reiterating two of the federal reserve ’ s most basic concerns as the current congress deliberates the issue of financial reform. first, we should recognize the increasingly evident fact that financial firms of all sorts now engage routinely in a wide variety of financial activities that, just a few decades ago, were considered to be nontraditional. even in cases where the financial activity is currently not permitted directly, the risks and returns of the activity can be mimicked through the prudent use of financial derivative instruments such as put and call options. we should recognize these facts and, in response, structure legislation that would permit the full economic integration of these various forms of financial activity, in order to gain the maximum operating efficiencies, the best tradeoffs between risk and return, and the most flexibility in meeting the needs of the customer

to be restrictive for some time to have confidence that inflation is moving back to target. for these reasons, we are committed to avoiding pulling back prematurely. we also recognize that risks may become more two sided at some point. uncertainty is currently high, and there are a range of estimates around the appropriate destination of the target range for the cycle. proceeding deliberately and in a data - dependent manner will enable us to learn how economic activity and inflation are adjusting to the cumulative tightening and to update our assessments of the level of the policy rate that will need to be maintained for some time to bring inflation back to 2 percent. 1 i want to thank kurt lewis and shaghil ahmed of the federal reserve board for their assistance on these remarks. these views are my own and do not necessarily reflect those of the federal reserve board or the federal open market committee. 2 the central banks of the united states, the united kingdom, canada, the euro area, australia, new zealand, norway, sweden, and switzerland together account for 49 percent of nominal global gdp measured in dollars at market exchange rates. each of these central banks has raised its policy rate by at least 125 basis points in the past six months. 3 see lael brainard ( 2015 ), " unconventional monetary policy and cross - border spillovers, " speech delivered at " unconventional monetary and exchange rate policies, " 16th international monetary fund jacques polak research conference, washington, november 6 ; and lael brainard ( 2017 ), " cross - border spillovers of balance sheet normalization, " speech delivered at the national bureau of economic research's monetary economics summer institute, cambridge, mass., july 13. 4 a paper based on data between 2005 and 2017 found that about half of the reaction in german domestic yields spills over to u. s. yields following ecb announcements, which was nearly identical to the spillover from u. s. yields to german bund yields measured following federal open market committee announcements. see stephanie e. curcuru, michiel de pooter, and george eckerd ( 2018 ), " measuring monetary policy spillovers between u. s. and german bond yields, " international finance discussion papers 1226 ( washington : board of governors of the federal reserve system, april ). 5 the federal reserve's broad trade - weighted dollar index is based on 26 currencies of major u. s. trading partners. it is published in statistical release h. 10, " foreign exchange rates