contributed to the low volatility of financial markets by making monetary policy too predictable. some argue that we should surprise market participants in order to manufacture greater uncertainty and generate more market volatility. the notion is that if the fed were more unpredictable, market participants would be less complacent. and, if markets were perceived as riskier, this might hinder the development of financial asset bubbles. i am not supportive of such a strategy for several reasons. first, i don ’ t think it is necessary to be unpredictable to keep financial market participants “ on their toes. ” there are plenty of potential surprises from the economic environment without the fed seeking to deliberately generate its own. changes in the economic outlook affect financial asset prices and market participants ’ expectations for future monetary policy actions. i don ’ t see a significant benefit to artificially adding “ noise ” to this process. developments in early 2016 provide a good example. as the economic environment changed and financial conditions tightened, we responded by raising short - term interest rates much more slowly than had been anticipated. second, deliberately degrading the signal of how we are likely to react to changes in economic circumstances would likely lead to higher risk premia. this would represent a real cost that would have to be borne by households and businesses. third, a less reliable fed would also 3 / 6 bis central bankers'speeches presumably loosen the linkage between the stance of monetary policy and financial conditions. because the monetary policy impulse works through its impact on financial market conditions, i don ’ t see why the fed would want to act in a way that deliberately made this linkage less predictable. in actuality, i have been pushing in the opposite direction. by explaining the importance of financial conditions as part of our monetary policy decisions, i am trying to tighten the linkage. balance sheet normalization i ’ d like to wrap up my comments tonight by discussing the likely next step in the monetary policy normalization process : beginning to allow maturing treasuries and agency mbs paydowns to run off the fed ’ s balance sheet, in contrast to our current practice of reinvesting all of the proceeds. as you are aware, following the june fomc meeting we issued an addendum to our policy normalization principles and plans. 3 in that addendum, the fomc outlined how it planned to gradually reduce the fed ’ s securities holdings over time. namely, when that program is implemented, the fomc will

monetary and fiscal policies deliver a confidence dividend. but, of course, trust and transparency are crucial factors all across the economy and the financial system. we all know that a business will not last long if it squanders the confidence of its customers, suppliers, and investors. the corporate finance and accounting scandals of 2001 and 2002 hurt more than just profits and portfolio gains. they also sideswiped the confidence of financial market participants. the problems that brought down enron, worldcom, and others were not limited to those companies. in fact, the international task force appointed by the international federation of accountants - and chaired by john crow, a former bank of canada governor - correctly notes that enron was the event which, by its sheer size, awoke many to issues that had been significant for some time. what ’ s encouraging is that this awakening has happened quickly and that considerable effort is being made to address those issues and reinforce trust in the financial system. the sarbanes - oxley act in the united states, for example, is aimed at restoring trust in corporate financial reporting. other international efforts are underway to improve both reporting and monitoring of public companies. in canada, federal and provincial governments have been working with the private sector to review and improve the framework governing public companies and capital markets. these initiatives are summarized in a document entitled fostering investor confidence in canadian capital markets, which can be found on the department of finance ’ s web site. efforts are focused on four areas : · improving financial reporting and disclosure ; · enhancing the quality of the audit process ; · strengthening corporate governance and management accountability ; and · toughening enforcement. all of these efforts are aimed at building the confidence needed to allow markets to protect the interests of investors and creditors and to operate efficiently so that businesses can finance their operations at the lowest cost. steps to foster confidence let ’ s look first at what ’ s been done to date to improve financial reporting and disclosure. our system, which has already worked quite well for canadians, is being strengthened. the proposed new changes are aimed at building confidence while keeping compliance costs relatively low. new guidelines on continuous disclosure obligations of public companies are being drafted by the canadian securities administrators. the goal is to implement them by january 2004. there are also new guidelines from the canadian institute of chartered accountants ( cica ) on stock options, financial guarantees, and off - balance - sheet arrangements. and the investment dealers association ( ida ) has developed new rules to promote the independence of financial analysts