issue as critical as economic convergence, often raises the question of the strength of the region ’ s political commitment to the single economy. prime minister arthur sees the problem not in terms of political commitment but in terms of the political form of integration that has been applied. he noted, in the speech to the trinidad and tobago chamber of commerce last year that, “ caricom is a community of sovereign states in which each nation retains exclusive powers relative to the implementation of decisions made at the regional level. accordingly, the pace of implementation of regional decisions has, in many cases been set by the urgency of the slowest member ”. prime minister arthur also lamented, “ in our community of sovereign states, there is no provision for the transfer of sovereignty to any supranational institution, nor is there a body of community law that takes precedence over domestic legislation ”. on this very subject, former prime minister pj patterson, in a speech in trinidad and tobago this year, also called for “ the establishment of a caricom commission or similar executive mechanism, with the capacity to mobilize political consensus on issues awaiting decision and to pursue expeditious implementation of decisions already made ”. clearly, there is an issue of a more effective governance structure. but beyond the new governance arrangements, there are the difficult practical issues. the reality is that caricom is a grouping of partners of varying sizes and means. as gains from integration will be unevenly distributed, there need to be mechanisms to compensate the so - called ldc ’ s ( less developed countries ). two such mechanisms are a development and a stabilization fund. even if some external assistance could be mobilized, the financing of these would need to come disproportionately from the stronger partners. this is going to require true statesmanship and a commitment from the larger and economically stronger economies to support the others. the mdc ’ s ( the more developed countries ) need to be prepared to play the role of “ big brother ” when smaller economies within the union experience adverse shocks. of course, in this region, countries have always had problems in meeting regional obligations. and the financing of the needed institutions of a single economy will continue to be a practical challenge. the issue of surrendering national control over monetary and exchange rate policy and transferring sovereignty to a regional central bank is also a real one. you may say that the oecs territories have done this and function effectively with a regional central bank and you are right.

composition of our balance sheet will make it challenging to execute smoothly. there are now more than $ 2. 4 trillion of excess reserves in the banking system. these reserves are not inflationary until they are converted to money and flow out into the economy. but as market rates rise in an improving economy, banks will find it advantageous to begin to increase lending or acquire assets using their reserves. the challenge for the fed is to control the flow of reserves so that we can successfully maintain our 2 - percent inflation target. this may require raising interest rates more quickly than currently anticipated. we have the tools that would enable us to raise rates if we chose to do so. however, the fed may be subject to political pressures or pushback from various interest - sensitive sectors that could result in a more measured response than required. one of the consequences would be higher inflation. history suggests that the fed tends to be behind the curve when it comes time to tighten monetary policy, and in the current environment, that delay could prove to be more costly than when reserves are in limited supply. thus, it ’ s a matter of our will rather than our ability. conclusion in summary, i believe that the economy is continuing to improve at a moderate pace. we are likely to see growth of around 3 percent in 2014. prospects for labor markets will continue to improve gradually, and i expect the unemployment rate will continue its decline to 6. 2 percent by the end of 2014. i also believe that inflation expectations will be relatively stable and that inflation will move up toward our goal of 2 percent over the next year. bis central bankers ’ speeches on monetary policy, the reduction in asset purchases from $ 85 billion a month to $ 75 billion a month is a step in the right direction. i believe the economy has met the criteria of significant improvement in labor market conditions for ending the program and that further increases in the balance sheet are unlikely to provide appreciable benefits for recovery. even after the asset purchase program has ended, monetary policy will still be highly accommodative. the work of the fed, however, is far from over. monetary policy still faces considerable challenges as we seek to normalize policy. the task should be to return to a framework in which a market rate is our primary policy tool, to reduce the size of our balance sheet, and to restore our portfolio to all treasuries. the challenge will be to do so in a way that ensures that inflation remains close to our target,