eric s rosengren : a us perspective on strengthening financial stability speech by mr eric s rosengren, president and chief executive officer of the federal reserve bank of boston, at the financial stability institute high - level meeting on the new framework to strengthen financial stability and regulatory priorities, st petersburg, russia, 24 may 2011. * * * of course, the views i express today are my own, not necessarily those of my colleagues on the board of governors or the federal open market committee ( the fomc ). good morning. i would like to thank josef tosovsky and the financial stability institute for inviting me to speak today on financial stability and on regulatory and supervisory priorities in the united states. i would also like to thank sergey ignatiev and the central bank of the russian federation for hosting this very important event. 1 i think it is crucial that we continue to share perspectives on financial stability and related issues. clearly the events of the past four years have heightened our awareness of how interconnected our economies, our financial institutions, and our financial markets have become. when large global financial intermediaries become troubled, it impacts not just home country borrowers and, potentially, taxpayers ; but increasingly can also have collateral impacts on host countries and their financial markets. much has been learned in the united states over the past four years about gaps in our regulatory and supervisory framework. one response to the gaps revealed during the financial crisis was the adoption of the dodd - frank wall street reform and consumer protection act. it ushered in significant changes and also required numerous studies to be undertaken, and new regulations to be considered and promulgated. much of this work is still in process. some of the most significant aspects of the dodd - frank legislation involve seeking greater clarity in the resolution procedures for complex financial holding companies that experience difficulties ; creating a financial stability oversight council ; establishing a consumer financial protection bureau intended to address gaps in consumer protection ; and increasing regulatory powers over, and focus on, systemically important financial institutions. a second major change resulting from the financial crisis has been a reappraisal of the quantity and quality of capital needed to avoid a reoccurrence. this matter is clearly critical to the basel iii discussions taking place here over the next two days ; but, i would note, has already been the focus of two supervisory exercises conducted in the united states. as i will describe in more detail in a moment, during a financial crisis investors focus on how much “ core ” or “ pure ”

only a gradual improvement in the economy and employment. to put it plainly, these housing - related headwinds are part of why i do not expect growth greater than 4 percent this year. and while 4 percent is not terrible, at that rate it will still take a very long time to get back to full employment. the second key question is, how concerned should we all be about a flare - up in inflation – and aren ’ t the measures the fed has taken inflationary? many have expressed concern that federal reserve policy actions that expanded our balance sheet dramatically will cause inflation. i firmly believe that in the short run inflation is likely to remain quite low – and that in the longer term we have the tools, and the steadfast commitment, to address inflationary pressures. indeed, while monetary policy works with lags, i would note that it has been more than two years since the fed ’ s balance sheet expanded dramatically. since that time, core inflation of course, the views i express today are my own, not necessarily those of my colleagues on the board of governors or the federal open market committee ( the fomc ). bis central bankers ’ speeches has fallen and core inflation measures using the cpi or pce indexes are at something like 50 year lows. today i will briefly address the role of the low inflation rate for the economy and policymaking. in doing so, i will discuss why inflation concerns have not materialized to date, and why i expect core inflation to remain below 2 percent over the next several years. question 1 : housing and the economic recovery the economic recovery officially began in the third quarter of 2009, according to the organization responsible for dating our recessions – the national bureau of economic research ( nber ). despite being a year and a half into the official recovery, the recovery period has been so tepid that there has been very little improvement in the percentage of the population employed ( see figure 1 ). the percent of the population employed in december was 58. 3, close to the low of this cycle and below the 59. 3 percent employed in july of 2009, when the recovery officially started. for context, the number was around 63 percent when the recession began. the recent stability of the employment - to - population ratio reflects the poor labor market performance of the current recovery. we are simply not generating enough jobs to reduce the number of unemployed persons. nor are we, by the way, providing job opportunities for the so - called “ discouraged workers