way in the future. a rise in long - term inflation expectations above levels consistent with price stability would be a very unwelcome development because inflation expectations are an important determinant of actual inflation. in principle, if inflation expectations rose, this could push up actual inflation despite the high unemployment rate. obviously, this would make it more difficult for the federal reserve to use monetary policy to achieve its dual objective of full employment and price stability. on the issue of the size of the fed ’ s balance sheet, the worry among some is that the rapid growth of the fed ’ s balance sheet will ultimately lead to an inflation problem. this anxiety stems from the fact that periods of rapid growth of the monetary base ( that is, currency plus bank reserves ) in the past have typically been followed by rapid credit growth and inflation. while i understand the concerns, i do not believe they are well - founded. we have a new tool : the ability to pay interest on excess reserves and that should enable us to cut the link between the size of our balance sheet and credit creation and inflation. if we raise the interest rate on excess reserves, we can incentivize banks to hold the excess reserves with us rather than lend them out. and that should work, because the price of credit is an important determinant of credit demand. if the fomc were to raise the interest rate paid on excess reserves, this would raise the price of credit. that, in turn, would limit the demand for credit. as a result, the excess reserves wouldn ’ t be lent out ; instead, the excess reserves would stay parked at the fed. that said, the fed ’ s exit from its current monetary policy stance is going to be more complicated than normal. normally, when we exit, we simply decide when we are going to raise the federal funds rate target. this time, we have a broader set of decisions to make. for example, do we drain reserves from the banking system? is it better for the banking system to operate with $ 500 billion of excess reserves or $ 1 trillion? this is an issue we have to explore further. in the meantime, we are testing our ability to drain reserves through the use of reverse repurchase agreements. it is important that this option be available to us in the event we want to use it. although it is going to be more complicated in the sense that we have more decisions to make about how to manage our exit, i believe the process is

the fall was largely the result of a fall in labor force participation. at 14. 8 percent the unemployment rate remains unacceptably high. high unemployment and low labor force participation remain perhaps the biggest challenges to the puerto rico economy. even in relatively prosperous times, the unemployment rate on the island has been more than double the rate on the mainland. high unemployment and low labor force participation are especially serious problems for young workers and are perhaps the clearest evidence that puerto rico needs to make better economic progress. many of the current problems facing puerto rico relate not just to cyclical weakness but to deeper structural challenges. this brings us to the subject of the report we issued today. i do not presume that this report is the last word on these important questions. we do not presume to claim that we have all the answers. rather, i hope that it is the start of a constructive and bipartisan debate that will advance good public policy and a better future for the people of puerto rico. i also hope that it will be read and considered beyond the business and government community, across the society at large. the goal we seek is not simply business success and expansion, but broad - based prosperity with rising standards of living and greater opportunities for all puerto ricans. i want to thank you again for the opportunity to address the chamber. jamie mcandrews, executive vice president and director of research, will now talk about the report we released and lay out its findings and recommendations. bis central bankers ’ speeches