lael brainard : transitions in the outlook and monetary policy speech by ms lael brainard, member of the board of governors of the federal reserve system, at the john f kennedy school of government, harvard university, cambridge, massachusetts, 1 march 2017 * * * these remarks represent my own views, which do not necessarily represent those of the federal reserve board or the federal open market committee. the economy appears to be at a transition. we are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing, and risks to the outlook are as close to balanced as they have been in some time. assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path. as normalization of the federal funds rate gets further under way, monetary policy too is approaching a transition, prompting increased focus on the balance sheet. how the federal funds rate and the balance sheet should be adjusted individually and in combination depends on the degree to which they are substitutes, their relative precision, and the degree to which their effects on the economy are well understood. let me start with the outlook and then turn to policy. progress at home and abroad over the past several quarters, we have seen improvement in inflation and activity both at home and abroad following a period when the drag on domestic activity from abroad was considerable. between the middle of 2014 and 2016, a combination of notable fragilities and risks in large foreign economies, elevated sensitivity of the dollar to policy divergence, a sharp decline in oil prices, and financial markets ’ heightened sensitivity to these downside risks slowed progress in the u. s. economy and the adjustment of monetary policy to an extent few had anticipated. after being an important constraint in the past few years, the external environment currently appears more benign than it has been for some time, even though risks remain. near - term risks to the united states from abroad appear to have diminished. recoveries are gaining traction in china, europe, and japan in part reflecting greater confidence in their respective policy environments. the improvement in the global risk outlook was also helped by the continued economic progress and the gradual pace of monetary policy adjustment in the united states last year. in recent quarters, market participants appear more confident that china has the will and capacity to maintain its exchange rate regime, while achieving its growth targets, although there is a tension with high credit growth that will eventually need to be addressed. early last year, china ’ s gross domestic

simultaneously, the infrastructures and common tools for climate risk management such as climate scenario analysis, stress test, and climate - related data 1 / 2 bis - central bankers'speeches must be put in place to create an enabling ecosystem where financial institutions and regulators could assess and monitor the risks effectively. ladies and gentlemen, looking ahead, it is thus inevitable that our regulatory and supervisory frameworks should take into account sustainability and climate - related factors. the conduct of prudential framework in this new landscape will arguably be the most difficult task as it is relatively new and still evolving. in addition, developing economies also have the distinct contexts and challenges to consider, especially on the expertise, data availability, and collaboration between public and private sector. hence, this course is essential for us seacen regulators to understand and identify our gaps, learn the key rationale why such frameworks and tools are being recommended and, more importantly, the implementation of cutting - edge practices that have been tested and adopted internationally. we are greatly fortunate to have such a prominent list of experts to share their insights and experiences on these topics. i would like to end my remarks by emphasizing the importance of regulators'capacity and collaboration. tackling sustainable finance and climate change is a challenging process and a long journey that cannot be accomplished by solely single entity. not only do financial institutions, but central banks and financial regulators also need to learn, share, and accommodate these new approaches to ensure sufficient measures and readiness of the whole financial sector for climate risk management and green transition. i hope you all have a good learning experience and a successful course. thank you very much. 2 / 2 bis - central bankers'speeches