for release on delivery 12 : 00 p. m. est november 28, 2018 the federal reserve ’ s framework for monitoring financial stability remarks by jerome h. powell chairman board of governors of the federal reserve system at the economic club of new york new york, new york november 28, 2018 it is a pleasure to be back at the economic club of new york. i will begin by briefly reviewing the outlook for the economy, and then turn to a discussion of financial stability. my main subject today will be the profound transformation since the global financial crisis in the federal reserve ’ s approach to monitoring and addressing financial stability. today marks the publication of the board of governors ’ first financial stability report. earlier this month, we published our first supervision and regulation report. together, these reports contain a wealth of information on our approach to financial stability and to financial regulation more broadly. by clearly and transparently explaining our policies, we aim to strengthen the foundation of democratic legitimacy that enables the fed to serve the needs of the american public. outlook and monetary policy congress assigned the federal reserve the job of promoting maximum employment and price stability. i am pleased to say that our economy is now close to both of those objectives. the unemployment rate is 3. 7 percent, a 49 - year low, and many other measures of labor market strength are at or near historic bests. inflation is near our 2 percent target. the economy is growing at an annual rate of about 3 percent, well above most estimates of its longer - run trend. for seven years during the crisis and its painful aftermath, the federal open market committee ( fomc ) kept our policy interest rate unprecedentedly low - - in fact, near zero - - to support the economy as it struggled to recover. the health of the economy gradually but steadily improved, and about three years ago the fomc judged that the interests of households and businesses, of savers and borrowers, were no longer best served by such extraordinarily low rates. we therefore began to raise our policy rate - 2gradually toward levels that are more normal in a healthy economy. interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy - - that is, neither speeding up nor slowing down growth. my fomc colleagues and i, as well as many private - sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 percent. there is a

ascertain the vulnerabilities and threats potentially affecting individual online systems, and to establish compensating internal controls with a view to mitigating those risks. we need to have robust systems that would ensure integrity of online transactions and backup mechanisms in case of failure. the smooth functioning and confidence in the payments system are areas that are very dear to a regulator ’ s heart. indeed the extent of that confidence determines to a large extent the decision of investors and businesses on where to place their funds or to locate their company ’ s ventures. therefore all initiatives geared towards ensuring a modern, efficient and safer banking environment are most welcomed. in fact, innovation, whether in the banking sector or elsewhere, is subject to important network externalities. to illustrate the point i am making here, let us take the example of the tgv ( train a grande vitesse – high speed train ) having to share rail networks with an old - fashioned steam engine train. it probably would not get very far and run the risk of damaging the whole rail network. in the same way innovation by an individual bank is greatly enhanced if everybody else is innovating, not least the regulator. the global financial crisis has very clearly exposed the dangers of the failure of regulators to keep abreast of developments taking place in the financial arena. the bank of mauritius is fully aware that it has a role to play in supporting innovation by individual banks. it has also been active on this front with a heightened role in the area of regional integration. central banks ’ concerns are however of a different nature. central banks look at the critical role of a smoothly functioning payment system in maintaining financial stability and in promoting the orderly and balanced development of the economy. the bank initiated a number of projects, regrettably those projects have been unduly stalled – for reasons that i would not wish to evoke here. however i will give you an overview of the changes that the implementation of those projects would have brought to the payments, clearance and settlement system in our country. repss as cross - border trade grows, the increased volume of transactions and migration to open account terms, that is, supplier credit extended to buyer at time of sale, are exerting pressure on banks as well as on the payment systems to improve the cross - border payment process. the current system of cross - border trade payments handled through correspondent banking relationships is slow, inefficient and costly for banks and businesses. improvements require significant investments in