quantify the business capabilities of firms expressing interest in becoming a primary dealer. through these changes, the new york fed is seeking to expand and diversify the pool of firms eligible to apply for primary dealer status, while also recognizing that a certain scale of activity is needed in order to be able to meet the many business obligations to which primary dealers must commit, in supporting the operations of the federal reserve and the treasury. these changes offer the opportunity to increase capacity and further support competitive pricing for the fed ’ s open market operations. going forward, the new york fed will periodically review its counterparty policy. turning to monetary policy, at the conclusion of its september policy meeting, the federal open market committee ( fomc ) announced that it would begin to reduce the size of the federal reserve ’ s securities portfolio. 2 over the past month, the fed took the first steps in a multiyear effort to bring the federal reserve ’ s balance sheet to its longer - run size, by not reinvesting a portion of the securities repayments it received. in the remainder of my prepared remarks today, i will offer my views on this policy from a financial markets perspective, drawing on a fuller set of remarks i delivered last month, which can be found on the new york fed ’ s website. 3 1 / 7 bis central bankers'speeches the message i ’ d like to leave you with today is one of confidence. i am confident that the fomc ’ s plan will reduce the size of the portfolio in a gradual and predictable, “ no surprises ” manner ; that the fomc ’ s plan will promote good market functioning in the treasury and agency mortgagebacked securities markets as the portfolio declines ; and that it will not prove disruptive to the u. s. mortgage market or the u. s. treasury ’ s debt management program. and i am also confident that the plan ’ s design, and the fomc ’ s clear communication prior to the plan ’ s implementation, will mitigate the risk of sharp or outsized asset price reactions to the decline in the portfolio ’ s size over time. of course, we cannot and should not prevent treasury and agency mbs prices from reacting to relevant economic and financial developments, or indeed from gradually moving over time in response to the progressive decline in the size of the federal reserve ’ s holdings and consequent increase in the amount of securities held by the private sector. in fact, we very much want asset prices to respond appropriately and

trough in output in the autumn of 2009, the uk economy has been on a gradual, if bumpy, path of recovery. that was to be expected. historically, and internationally, we know that economic recovery after a major financial crisis is usually slow and seldom smooth – the mpc ( and i personally ) have been aware of this and flagging it for some time. even though we have been predicting a rough ride, the output data at the end of last year and the beginning of this still came as an unwelcome surprise. analysis of past data suggests that the most likely explanation is that we are currently going through a temporary soft patch. we can ’ t be sure since no two historical episodes are ever exactly the same. until underlying growth resumes, we can ’ t be certain that it will, of its own accord. at the very least, that makes me pause to consider when policy should start to be normalised or even whether further loosening might be justified. the recovery in 2010 was driven by a particularly strong contribution from business investment and stock - building ( chart 4 ). the latter was always likely to offer a transitory boost to overall growth as companies returned stock holdings towards their desired levels, after de - stocking during the recession. and investment was always likely to make some positive contribution – at least once delayed projects and routine maintenance were re - started. but that boost is unlikely to persist without a pick - up in final demand to justify it. and consumer spending, the most important component of uk demand, has been stagnant for a year ( chart 5 ). the current behaviour of consumption is markedly different to that during the 1980s and 1990s when consumption had broadly regained its pre - recession level by this point in the cycle, rather than being around 4 % below it ( chart 6 ). bis central bankers ’ speeches chart 4 chart 5 contributions to 4 - quarter gdp growth ( a ) household consumption ( a ) percentage points - 2 consumption government spending investment stockbuilding net trade gdp ( per cent ) - 4 - 6 - 8 ( a ) investment includes valuables. excluding the alignment adjustment. stocks ( a ) chained - volume measure. includes non - profit institutions serving households. ( b ) pre - recession trend calculated by projecting forward household consumption from 2008 - q2 using the average quarterly growth rate between 1998 q2 and 2008 q1. chart 6 chart 7 consumer spending during recessions and recoveries ( a ) contributions to growth in real post - tax