household spending ; and businesses had successfully worked off the overhang of inventories that had emerged at the end of 2006. in addition, strong demand from abroad was providing considerable support to our exports. the fomc recognized that less accommodative conditions in some financial markets posed a threat to the strength of future economic growth. nonetheless, our primary concern remained the upside risks to inflation. shortly after the august fomc meeting, however, financial market conditions deteriorated considerably further, following events that shook investor confidence, particularly in complex structured credit products. the disruptions to nonprime mortgage markets became more severe and problems even extended to high - quality loans, as rates for prime jumbo mortgages jumped after the secondary markets for them shut down. importantly, the disruptions also spread beyond the mortgage markets. most notably, investors'concerns about exposures to subprime mortgage credit risk caused them to shun commercial paper that might be backed by such assets, in both europe and the united states. this aversion, in wendy dunn and william wascher, of the board ’ s staff, contributed to the preparation of these remarks. turn, meant that commercial banks that had written backup liquidity lines for commercial paper programs or had other connections with these programs might have to make good on their actual or implied support by extending credit. with leveraged buyout credit and some mortgage originations also possibly staying on the balance sheet unexpectedly, the banks faced substantial, but uncertain, calls on their liquidity and capital. all this uncertainty led the banks and other short - term lenders to turn very cautious ; interest rates on bank deposits and other sources of credit beyond just a few days rose steeply, funding in money markets became concentrated in the very short term, and concerned and uncertain lenders generally became much less willing to extend the credit needed for liquid and efficient financial markets. why the financial markets behaved as they have is a complex story that we will be sorting out for a while. for our purposes this morning, i will concentrate on the consequences for household and business borrowers and for the economy. in particular, i expect that the financial market turmoil of the past few months will leave an imprint on the cost and availability of credit to many household and business borrowers. the greatest effects have been on credit related to residential real estate ; in addition to the problems with nonprime and jumbo first mortgages, second mortgages and home equity lines of credit that many households have been using

susan s bies : north american monetary policy - key developments in recent times speech by ms susan s bies, member of the board of governors of the us federal reserve system, at the canadian american business council's rbc distinguished speakers series, embassy of canada, washington, dc, 12 november 2002. * * * it is a great pleasure for me to be here with you today. certainly, the theme for today's session - - " north american monetary policy " - - ought to provoke some lively discussion. let me start with the usual disclaimer - - my remarks reflect my personal views and should not be taken as an official view of the board of governors or the federal reserve system. as you know, the fomc last week chose to lower the target federal funds rate 50 basis points to a forty - year low of 1 - 1 / 4 percent and also indicated that it viewed the risks to the economy going forward as balanced. of course, the macroeconomic developments over the last few years that have brought us to this point have been quite remarkable, and i'll offer some perspectives on some of those key developments in a moment. over this same period, there have been some quite important developments in the art and science of central banking, and it seems useful to pause here at the outset to take stock of this evolution in central banking practice in the united states. though barely a single page in length, last week's fomc announcement embodied all of the key structural elements of the current monetary policy framework in the united states. the text of the announcement provided a rationale for the decision in terms of the fomc's twin objectives - - long - run price stability and sustainable economic growth. the policy decision itself involved a specific setting for the key monetary policy instrument - - the target federal funds rate. and the goals of central bank transparency and accountability were served by a discussion of the committee's views about the important forces impinging on the economy at the present time and its sense of the balance of risks to the economy in the future. all three of these key elements of the monetary policy framework - - the fomc's objectives, primary policy instrument, and emphasis on transparency - - have undergone significant change in recent years. as indicated in the original version of the federal reserve act in 1913, the federal reserve was founded " to furnish an elastic currency " and to promote " more effective supervision of banking. " it wasn't until