important to take a step back and explain some of the key factors that my colleagues and i at the federal reserve consider in reaching our policy decisions. the fed has what we call a “ dual mandate, ” which are two goals set by congress : maximum employment and price stability. with these goals in mind, our focus is understanding developments that affect labor markets, inflation, and economic growth. but we also collect and analyze enormous amounts of other information, both in the form of data and reports from members of the communities we serve, to help us assess the state of the economy and inform our decision - making. the economic outlook i ’ ll start off with the most common measure of the overall economy : gross domestic product, or gdp. i expect inflation - adjusted, or real, gdp to rebound sharply this year. indeed, with strong 1 / 4 bis central bankers'speeches federal fiscal support and continued progress on vaccination, gdp growth this year could be the strongest we ’ ve seen in decades. such a robust rebound would be very welcome after the toughest period for the economy in living memory and a winter where the pandemic has been particularly severe. the resurgence of covid - 19 over the past few months caused consumers to pull back on spending, resulting in significant job losses in some sectors — especially in leisure and hospitality. in past recessions, we have typically seen a decline in manufacturing jobs, while the service sector — establishments like hotels, bars, and restaurants — was not affected to the same extent. but the pandemic has flipped the script in that regard. indeed, this time, both the manufacturing and housing sectors have rebounded sharply since last spring, while much of the service sector remains depressed. the pandemic has had a truly devastating effect on employment. overall, as of january of this year, we are down nearly 10 million jobs from the pre - pandemic level, a greater shortfall than we saw even at the worst point of the aftermath of the great recession. locally, we ’ ve experienced considerable strain, given that much of new york city ’ s economy hinges on the leisure and hospitality industry. job losses have been dramatic : new york was hardest hit at the start of the pandemic, and almost a year later the data still show a city under stress. while national employment was 7 percent below pre - pandemic levels at the end of 2020, employment in new york city was 12 percent lower. 1 i hope that as workers return

this area is slow and with current set - ups we are not going to get far without having the main reserve currency country on board. this raises the question that i will turn to next : in the absence of global ( or regional ) reforms, what will individual soes have to do in order to reap the benefits of cross - border financial integration in safe manner? in order to answer this question, we need to understand how cross - border financial integration affects the ability of soes to preserve both monetary and financial stability. 1 first, a simple theory. if we have a world made up of one very large country and several very small countries, with full cross - border financial integration ( in the for a more expanded version of what follows, see my published work, in particular gudmundsson ( 2008 ) and gudmundsson ( 2016 ). economic sense of these terms rather than the legal one ), and assume that relative risk premia are constant, then long - term interest rates in the small countries will be pegged to long - term rates in the large one. this, of course, is an “ unrealistic ” theoretical simplification. but it gives us a reference point to start to think about these issues, and it indicates the direction we might be heading in as global financial integration progresses. in this type of world, the small countries could still have independent monetary policy of a sort, provided that they have a flexible exchange rate regime. they could pick their own inflation targets and set their own short - term rates that would affect economic activity in the short run and inflation in the long run. in this case, monetary policy works mostly through the exchange rate channel. if exchange rates are “ well behaved ” and the financial sector is sufficiently regulated and supervised, then a floating exchange rate and “ keeping your own house in order ” is sufficient for independent monetary policy and financial stability. the problem is, however, that exchange rates are sometimes far from being smooth reflections of underlying fundamentals. the evidence suggests that foreign exchange markets exhibit excess volatility and that exchange rates diverge from fundamentals for protracted periods. in some sense, the existence of carry trade can be construed as evidence of this, as it involves betting that interest rate differentials are not fully compensated by exchange rate movements ; i. e., that uncovered interest rate parity does not hold, except at long horizons, and then often through sharp and disorderly corrections. this, in turn