financial market infrastructures, among other efforts. nonetheless, we must continue to work on these issues. in particular, the u. s. financial system — the epicenter of the crisis — has been considerably strengthened. here, i would highlight additional reforms such as the comprehensive capital analysis and review ( ccar ) regime, which imposes annual capital stress tests on systemically important banks ; tri - party repo reform ; and money market mutual fund reform. policymakers globally have also made good progress on strengthening supervisory oversight, and are making headway — albeit more slowly — in developing effective macroprudential frameworks and toolkits. but, more work remains to be done in several areas. i would put particular emphasis on the tasks of completing the creation of a credible bank resolution regime that will work on a crossborder basis, and developing effective recovery regimes for key financial market infrastructures. i also agree with helene that monetary policy in the united states — given the size of its financial markets and the u. s. dollar ’ s status as a reserve currency — can have a significant impact on 1 / 4 bis central bankers'speeches global financial conditions, including exchange rates, and that shifts in u. s. monetary policy can lead to consequential shifts in global capital flows. however, it is also important to note that the impact of u. s. monetary policy restraint on emerging market economies ( emes ) has varied widely across tightening cycles. the impact depends on many factors, including eme fundamentals, asset valuations, and the extent and composition of prior capital inflows to those economies. importantly, the impact has tended to be more benign when u. s. yields rise in response to good u. s. growth prospects. in contrast, spillovers have tended to be more adverse when increased monetary policy stringency is associated with a deteriorating u. s. economic outlook. 2 these observations point to the need for the united states to keep its own house in order. promoting economic growth and financial stability in the united states, i believe, is the most important contribution we can make to promoting growth and stability worldwide. like nearly all central banks, the federal reserve has a domestic mandate set for it — in our case, by the u. s. congress. it cannot subordinate its legal mandate of maximum employment and price stability in the united states to alternative international goals. but, given the role of the united states and the u. s. dollar in the global

favorable view of a phased - in, cap approach whereby reinvestments would be decreased gradually. participants favored this 2 / 4 bis central bankers'speeches strategy because a preannounced schedule would be gradual and predictable, limiting the magnitude of the runoff could help mitigate any adverse market effects, and the strategy would be relatively easy and straightforward to communicate. finally, as i noted earlier, we followed up in our last fomc meeting with the release of an addendum to our policy normalization principles and plans that outlined how our balance sheet normalization plan will work when it is implemented. we also said clearly in the fomc statement that if the economy evolves in line with our expectations, we expect to begin this process this year. in response, market participants have progressively increased the probability assigned to a change in reinvestment policy this year. yet, treasury and agency mbs markets have responded little at the time of these announcements — including those undertaken most recently. to me, this suggests that these communications have generally been effective in fostering an orderly adjustment in expectations about how we are likely to normalize our balance sheet. i also agree with helene about the important role of financial conditions in influencing economic activity. as i see it, financial conditions are a key transmission channel of monetary policy because they affect households ’ and firms ’ saving and investment plans and thus influence economic activity and the economic outlook. if the response of financial conditions to changes in short - term interest rates were rigid and predictable, then there would be no need to pay such close attention to financial conditions. but, as we all know, the linkage is in fact quite loose and variable. for example, during the mid - 2000s, financial conditions failed to tighten even as the federal reserve pushed its federal funds rate target up from 1 percent to 5¼ percent. conversely, at the height of the crisis, financial conditions tightened sharply even as the federal reserve aggressively pushed its federal funds rate target down toward zero. as a result, monetary policymakers need to take the evolution of financial conditions into consideration. for example, when financial conditions tighten sharply, this may mean that monetary policy may need to be tightened by less or even loosened. on the other hand, when financial conditions ease — as has been the case recently — this can provide additional impetus for the decision to continue to remove monetary policy accommodation. while i agree with helene in most respects, there are a few points where i am less convinced. while the global financial