policies the cumulative effects over half of a decade of the extraordinary actions by the federal reserve and other central banks will need to be unwound in the coming years, as progress toward economic recovery makes it necessary to withdraw our substantial monetary accommodation. in the normalizing of its policy, just as when loosening policy, the federal reserve will take account of how its actions affect the global economy. the taper tantrum episode notwithstanding, most emes have generally weathered the winddown of our asset purchases reasonably well so far. the actual raising of policy rates could trigger further bouts of volatility, but my best estimate is that the normalization of our policy should prove manageable for the emes. we have done everything we can, within the limits of forecast uncertainty, to prepare market participants for what lies ahead. some critics of our policies have argued that, by continuing for so long with quantitative easing, the united states fueled a global boom in asset prices and credit growth that could provide the seeds of the next financial crisis, with the removal of monetary accommodation serving as an eventual trigger. but i am much more hopeful. first, the federal reserve and other central banks are going to great lengths to communicate policy intentions and strategies clearly. given this, markets should not be greatly surprised by either the timing or the pace of normalization. in fact, it bears mentioning that, following the taper tantrum, when the fed started to taper its purchases, there was little reaction from markets. second, the tightening of u. s. policy will begin only when the u. s. expansion has advanced far enough, in terms both of reducing the output gap and of moving the inflation rate closer to our 2percent goal. thus, tightening should occur only against the backdrop of a strengthening u. s. economy and in an environment of improved household and business confidence. the stronger u. s. economy should directly benefit our foreign trading partners by raising the demand for their exports, and perhaps also indirectly, by boosting confidence see draghi and constancio ( 2013 ) and bank of england ( 2013 ). the success of forward guidance, of course, depends crucially on the ability of policymakers to make informative statements about their intentions without a formal commitment device. powell ( 2013 ) notes that emes with larger current account deficits experienced both greater depreciations of their currencies and larger increases in their bond yields in mid - 2013, suggesting that, while a reassess

fischer, stanley ( 2014 ). “ financial sector reform : how far are we? ” speech delivered at the martin feldstein lecture at the national bureau of economic research, cambridge, mass., july 10. fleming, j. marcus ( 1962 ). “ domestic financial policies under fixed and under floating exchange rates, ” international monetary fund staff papers, vol. 9 ( november ), pp. 369 – 80. fratzscher, marcel ( 2012 ). “ capital flows, push versus pull factors and the global financial crisis, ” journal of international economics, vol. 88 ( november ), pp. 341 – 56. fratzscher, marcel, marco lo duca, and roland straub ( 2013 ). “ on the international spillovers of u. s. quantitative easing ( pdf ), ” working paper series 1557. frankfurt : european central bank, june. furceri, davide, stephanie guichard, and elena rusticelli ( 2011 ). “ medium - term determinants of international investment positions : the role of structural policies, ” oecd economics department working paper series 863. paris : organization for economic cooperation and development, may. gagnon, joseph, matthew raskin, julie remache, and brian sack ( 2011 ). “ large - scale asset purchases by the federal reserve : did they work? ( pdf ) ” federal reserve bank of new york, economic policy review, vol. 17 ( may ), pp. 41 – 59. glick, reuven, and sylvain leduc ( 2013 ). “ the effects of unconventional and conventional u. s. monetary policy on the dollar ( pdf ), ” working paper series 2013 – 11. san francisco : federal reserve bank of san francisco, may. hamilton, james d., and jing cynthia wu ( 2012 ). “ the effectiveness of alternative monetary policy tools in a zero lower bound environment, ” journal of money, credit and banking, vol. 44 ( february ), pp. 3 – 46. hanson, samuel, and jeremy stein ( forthcoming ). “ monetary policy and long - term real rates, ” journal of financial economics. hausman, joshua, and jon wongswan ( 2011 ). “ global asset prices and fomc announcements, ” journal of international money and finance, vol. 30 ( april ), pp. 547 – 71. hume, david ( 1742 ). “ of interest, ” political