##ity – in berlin. central banks do have an important role to play in catalyzing the effects of climate policies for financial markets. 5 they can contribute within their mandates : price stability and financial stability are important preconditions for sound investment and economic decisions. take price stability first. policies to reduce carbon emissions will ultimately have to make carbonintensive goods and services relatively more expensive. for these policies to succeed, market participants have to extract relative price signals and act upon them. price stability is an important condition for this mechanism to work. financial stability is equally important. climate risks must be priced on financial markets in order to ensure that investments are climate - friendly. 1 / 3 bis central bankers'speeches sound decision - making and the correct pricing of risks is thus supported by central banks when they achieve their policy objectives : price stability and financial stability. at the same time, policy instruments in the hands of central banks are no substitute for policy action taken by elected politicians. monetary policy has been delegated to technocratic, independent institutions with a well - defined, narrow mandate. independence reduces the risk of price stability being subordinated to other political objectives and of policy decisions being reversed due to political cycles. but this also implies that central banks are not subject to the scrutiny of the political process – their “ independence ” and the lack of direct democratic accountability limits the use of their policy instruments. are there lessons to be learned from this institutional design of central banking for the climate debate? i think there are. needless to say, climate policy is a much more multi - faceted problem than monetary policy, and its effects materialize over a longer time horizon. the risk of policy reversals is very real, though : the transition to a carbon - neutral society can have short - term costs for households and firms. the positive long - term effects are not immediately visible. this can weaken political support for climate policies. one lesson from central banking is that agency independence can help to reduce the risk of policy reversals. a recent g30 report led by janet yellen and mark carney, for example, argues that the calibration of policy instruments can be delegated to “ carbon councils ” in order to “ … insulate decisions with significant long - term implications from short - term political pressures ”. 6 so what can central banks do to support climate policies – where is additional work needed? our main priorities are : to improve macroeconomic modeling and stress testing to account for climate - related risks

john c williams : the economic outlook and monetary policy presentation by mr john c williams, president and chief executive officer of the federal reserve bank of san francisco, to the cfa hawaii seventh annual economic forecast dinner, honolulu, 1 march 2012. * * * i would like to thank john fernald, rob valletta, and sam zuckerman for assistance in the preparation of these remarks. the economic outlook and monetary policy thank you. it ’ s a pleasure to participate in this event and to enjoy the beauty and hospitality of the wonderful state of hawaii. sadly, this is my first visit here in 25 years. in fact, the last time i was here was back when i worked for a small business in the san francisco bay area after i graduated from college. the business owner sent me on an all - expenses - paid, weeklong vacation as a reward for hard work. throughout my career at the federal reserve, i ’ ve tried to convince my bosses of the productivity - enhancing benefits of such an enlightened management practice. unfortunately, i never succeeded. now, as president of the san francisco fed, it is my pleasant duty to visit all nine states in the 12th federal reserve district. i plan to be diligent in fulfilling that duty. so, i assure you, it won ’ t be another 25 years till i ’ m back. in my remarks this evening, i ’ m going to talk about the current state of the economy, where it ’ s headed, and what the federal reserve is doing to boost growth while keeping inflation low. my remarks represent my own views and not those of others in the federal reserve system. it ’ s been over two - and - a - half years since the end of the worst recession of the post - world war ii period. the economy is growing, and the recent economic news has been increasingly positive. this is very welcome progress, but it ’ s brought us only part of the way back. unemployment remains a huge problem, and that means real hardship for millions of americans. the severe recession and subdued recovery have prompted the fed to carry out a series of extraordinary policy actions to restore the economy to health. most notably, we ’ ve kept our benchmark short - term interest rate near zero for over three years. this aggressive fed response is an important reason why the economy has moved to more solid ground. but, as i ’ ll explain, the fed ’ s job is not over yet. far from it. congress has assigned the