of liquidity in the form of domestic currency can actually make the financial crisis worse by raising inflation fears and thus causing the domestic currency to depreciate. given a debt structure characterized by liabilities denominated in foreign currency, this depreciation causes the domestic - currency value of the liabilities to rise, induces a deterioration of balance sheets, and thus causes a severe economic contraction. moreover, a run on the domestic currency will likely be associated with a spike in nominal domestic - currency interest rates – just the opposite of what the injection of liquidity was intended to achieve – which will further damage economic prospects. therefore, if liquidity is to be provided during a financial crisis in an emerging - market economy, it generally should be in the form of foreign, not domestic currency. but, if a domestic central bank lacks the foreign reserves to conduct emergency liquidity assistance in foreign currency to stop a financial crisis or promote a recovery when one occurs, can another institution come to the rescue? the answer is yes, and it is often best if the assistance comes not from within the country, but from without. liquidity provided by foreign sources can help emerging - market countries cope with financial crises without many of the undesirable consequences that can result from the provision of domestic - currency liquidity by the domestic central bank. roperly managed, and in conjunction with steps to address the sources of the crisis, foreign liquidity assistance does not lead to increased inflation, higher interest rates, and an excessive depreciation of the domestic currency. instead, it gives the government international reserves which can then be used to stabilize the value of the domestic currency and support domestic financial markets and institutions. indeed, foreign liquidity assistance should also help lower interest rates ( and thus improve firms'and households'cash flow ). the resulting strengthening of domestic balance sheets helps undo the asymmetric information problems created by a financial crisis. the need for providing liquidity has once again become the primary focus of governments around the world. today i would like to review the principles that should govern such lending and then examine some key issues concerning the activities of an international lender of last resort, including which institutions could play this role. how should a lender of last resort operate? our understanding of the sources of systemic risk immediately suggests three general principles for operating as an effective lender of last resort : ( 1 ) restore confidence in the financial system by quickly providing liquidity, ( 2 ) limit moral hazard by encouraging

the spring of 2023, there were calls from some to stop rate hikes despite inflation still running over 5 percent. but there were other tools in hand to deal with that stress, monetary policy did not overreact, and the fomc continued tightening policy. when inflation fell unexpectedly in the second half of last year, we did not overreact and immediately cut the policy rate. then when inflation accelerated in the first quarter, we did not overreact and raise rates despite some calls to do so. i will be looking at these last two employment reports in combination with all other data as we head into the september fomc meeting to decide the best stance of policy. i believe our patience over the past 18 months has served us well. but the current batch of data no longer requires patience, it requires action. 1 / 5 bis - central bankers'speeches today's jobs report continues the longer - term pattern of a softening of the labor market that is consistent with moderate growth in economic activity, the details of which i will get into in a moment. as i said at the outset, considering the progress we have made on getting inflation back to target, i believe that the balance of risks is now weighted more toward downside risks to the fomc's maximum - employment mandate. while the labor market has clearly cooled, based on the evidence i see, i do not believe the economy is in a recession or necessarily headed for one soon. the collective set of economic data indicates to me that the labor market and the economy are performing in a solid manner and the prospects for continued growth and job creation are good, with inflation near 2 percent. i continue to believe that this can occur without substantial harm to the labor market. but i also believe that maintaining the economy's forward momentum means that, as chair powell said recently, the time has come to begin reducing the target range for the federal funds rate. in the rest of my remarks, i will lay out my reasons for believing that the economy and employment will likely keep growing as inflation moves toward 2 percent. the first of these is the large body of evidence that economic activity is continuing to grow at a solid pace. real gross domestic product ( gdp ) grew at a 2. 2 percent annual rate in the first half of this year and recent data indicates that growth is continuing at around this pace in the third quarter. retail sales were stronger than expected in july and showed that households continue to spend as their finances