, borrowing from financial institutions allows a firm to invest more in r & d and capacity expansion than would be possible using only its cash reserves. housing loans and credit cards enable households to consume and invest more than the amount of cash at hand. savings in a bank account generate interest income. access to financial services such as these leads to more efficient business development and active consumption, thereby promoting overall economic growth of the country. financial inclusion would also enhance the effectiveness of monetary and fiscal policy. regarding monetary policy, as most of the interest rates of borrowings and savings by firms and individuals are based on policy rates, central banks can affect their behavior by changing policy rates. this would improve the effectiveness of monetary policy and help smooth the economic cycle in the long run. enhanced access to financial services would also increase the effectiveness of fiscal policy. for example, ensuring a means to transfer money to every individual would allow policy makers to design subsidization programs that are targeted at a specific segment of society. this would make possible a finer - tuned redistribution policy. in addition, tax collection would become more effective. in advancing financial inclusion, it is necessary to develop both " hard " and " soft " infrastructures. hard infrastructures typically include telecommunications, such as the internet and mobile phones. soft infrastructure includes for example the active use of fintech, which, in addition to improving financial literacy, would be effective in broadening the range of financial services available. in the short run, the introduction of state - of - the - art asli demirguc - kunt et al., " the global findex database 2017 : measuring financial inclusion and fintech revolution, " world bank group ( 2018 ). 2 for example, see : thorsten beck, asli demirguc - kunt, and ross levine, " finance, inequality and the poor, " journal of economic growth, vol. 12 ( 1 ), pp. 27 - 49 ( 2007 ). fintech might lead to so - called leapfrogging. this refers to the phenomenon where the convenience of services is drastically enhanced by taking advantage of new technologies even before services based on older technologies have become entrenched. for example, mobile payments spread rapidly in china in just a few years. providing payment services via mobile phone does not require conventional physical infrastructure such as branch and atm networks that were considered indispensable in providing broad access to financial services. china not only enjoys improved access to banking services but has also saved on

personal tax cuts of recent years and the special incentives for capital spending, fiscal policy will no longer be providing a special impetus to spending. let me be clear : this is a positive development ; the economy does not need this extra boost, and it is time to turn our attention to the need to raise domestic saving to finance the investment that will help us prepare for the coming surge in retirements. on the monetary side, policy is still accommodative and will need to tighten to avoid inflation building up - the source of my " for a while " prediction. even if short - term rates rise gradually, long - term rates probably will increase in a more - normal pattern of response than we have seen over the past year, since the offset provided by declining risk spreads should not be in operation. risk spreads actually have widened a bit in recent weeks, perhaps indicating somewhat more caution on the part of lenders. the rise in interest rates will tend to damp investment spending and could inject some added uncertainty into still - settled financial market conditions. the pace and extent of policy adjustment will depend critically on the inflation outlook, so let me turn to that next. my colleague, ben bernanke, has pointed to the global pattern of saving and investment as another reason for low longterm interest rates. see " the global saving glut and the u. s. current account deficit, " remarks by governor ben s. bernanke at the sandridge lecture, virginia association of economics, richmond, virginia ( march 10, 2005 ). inflation consumer price inflation - both total and core - rose somewhat in 2004. much of the increase in total inflation, but not all, reflected the upward movement of energy prices. core inflation, which abstracts from food and energy price changes and better reflects underlying price pressures over time, also rose. the increase in core inflation reflected a reversal of some of the factors that had temporarily lowered it in 2003 and it also was elevated in the first half of last year by the pass - through of increases in the prices of energy, commodities, and other imports. core inflation shifted down in the second half of 2004, providing evidence and assurance that an inflationary spiral was not under way. more recently, we have seen some hints that inflation pressures could be intensifying. greater price increases have been most evident for goods at earlier stages of production with an uptick in prices for commodities and other materials, for energy, and for non - energy imports. a number