janet l yellen : reaping the full benefits of financial openness speech by mrs janet l yellen, vice chair of the board of governors of the federal reserve system, at the bank of finland 200th anniversary conference, helsinki, 6 may 2011. * * * i am indebted to board staff members brian doyle, steven kamin, and nathan sheets for their assistance in preparing these remarks. thank you. i usually begin my remarks by stating that my views are my own and do not necessarily reflect those of anyone else on the federal open market committee ( fomc ). however, in this case, i would like to extend best wishes to the bank of finland on its 200th anniversary not only from myself but also on behalf of chairman bernanke, of the rest of the fomc, and of the entire federal reserve system. all of us have enjoyed many years of fruitful contact with the bank of finland, and we hope to continue to do so for many more to come. okay, disclaimer back on. the subject of this session, " finance and growth, " is aptly chosen, as the severity of the recent global financial crisis has prompted a reappraisal of conventional thinking regarding the role of the financial system in our economies. because one of the distinguishing features of the crisis was its global reach, this reappraisal should address, among other issues, the benefits of global capital mobility and the extent to which countries should open their financial markets to the rest of the world. does increased financial openness result in stronger economic growth and improved economic performance more generally? indeed, even well before the current crisis, a number of economists had begun to question the near - consensus view in favor of unrestricted financial openness. and, more recently, a number of publications from economists at the international monetary fund ( imf ) have suggested circumstances when capital controls might be appropriate. 1 as a practical matter, during the ongoing recovery from the crisis, some emerging market economies have attracted considerable capital inflows, raising concerns about potential overheating and leading authorities in a number of countries to impose capital controls in an attempt to manage these flows. as i will discuss today, these issues are complicated, but i continue to believe that open capital markets offer significant benefits in terms of greater efficiency and improved standards of living, and that they represent a long - run goal to which policymakers should remain committed. that said, recent experience suggests that reap

economic output had flattened, i argued that a soft landing was still possible - that it was quite plausible to make progress on inflation without seriously damaging the labor market. so far, we have managed to do so, and i remain optimistic that this progress can continue. i believe that monetary policy should continue to tighten, but using a comparison i employed in a speech a couple months ago, the view from the cockpit is very different at 30, 000 feet than it is close to the ground. when the fomc began raising the federal funds rate last spring from near zero, it made sense to move quickly. but after frontloading monetary policy tightening, with many unprecedented 75 basis point hikes in the federal funds rate target, by early december i believed the policy stance was 3 / 4 bis - central bankers'speeches slightly restrictive, and i supported a decision by the committee to hike by a still considerable 50 basis points. 2 to return to the airplane image, after climbing steeply and using monetary policy to significantly raise interest rates throughout the economy, it was apparent to me that it was time to slow, but not halt, the rate of ascent. and in keeping with this logic and based on the data in hand at this moment, there appears to be little turbulence ahead, so i currently favor a 25 - basis point increase at the fomc's next meeting at the end of this month. beyond that, we still have a considerable way to go toward our 2 percent inflation goal, and i expect to support continued tightening of monetary policy. i think that is probably enough from me, so that there will be more time for you to ask questions. thank you again to the cfr for the opportunity to be here today. 1 the fomc communicated its intentions for some time before march, and this guidance effectively began monetary policy tightening before raising rates and beginning the tapering of asset purchases that month. the views expressed here are my own and to not necessarily reflect those of my colleagues on the fomc. 2 each 75 basis point hike was the largest rate single increase since the fomc began announcing its rate decisions in 1994. the committee raised rates at individual meetings by larger amounts in the early 1980s, when it raised the federal funds rate to near 20 percent. 4 / 4 bis - central bankers'speeches