there is any particular monetary policy framework that is suitable for all countries for all times. the central bank ’ s choice of monetary policy framework should depend on the objectives it aims to achieve, on the challenges that the economy faces, and on the structure of the financial markets and the economy in which it operates. and it is likely that the monetary policy framework will change over time as the domestic economy and the international financial system develop. the exchange rate regime is a key consideration. in recent decades, developing economies have experienced increasing capital mobility and financial integration into the global economy. over the longer term, this is a welcome development that will help meet the substantial financing needs of the private and public sectors, but greater financial integration and financial flows also complicate monetary policy in an environment in which exchange rate considerations are important – and they are generally very important. these are small open economies in which external shocks are often large, and the excessive volatility inherent in free - floating exchange rates can be costly. as a consequence, many developing and emerging market countries both intervene in the foreign exchange markets and impose restrictions on capital inflows and outflows. why not simply peg the exchange rate? according to the impossible triad, or the more sophisticated version developed by helene rey, the impossible duo, a pegged rate, combined with capital mobility, makes it difficult for monetary policy to be used independently to achieve macroeconomic stabilization and price stability. 6 nonetheless, some economies have successfully implemented pegged exchange rates. hong kong and francophone africa are leading examples. properly managed, some flexibility of exchange rates can help economies absorb external shocks, including swings in prices of commodities to which these economies are still heavily exposed. accordingly, there has been a shift toward flexible, but managed, exchange rate systems among emerging market and developing economies. however, none of us should underestimate the difficulties of managing the exchange rate and of developing knowledge about when and how much to allow the exchange rate to move in response to domestic and external economic shocks. even beyond the management of the exchange rate, central banks in developing countries face difficult challenges in developing their monetary policy frameworks. for many years, the standard international monetary fund approach to monetary policy – which embodied the monetary approach to the balance of payments – emphasized money targets. but this approach has become less tenable as economies have evolved and matured. as you know, the effectiveness of such a framework depends, among other things, on the stability of the money demand function and on the

philip n jefferson : the us economic outlook and considerations for monetary policy speech by mr philip n jefferson, member of the board of governors of the federal reserve system, at the 2023 international insurance forum, national association of insurance commissioners ( naic ), washington dc, 18 may 2023. * * * good morning, everyone. thank you for inviting me to speak. it is a pleasure to be here. i would like to use this opportunity to share with you my outlook on the u. s. economy, credit conditions, and monetary policy. before i start, let me remind you that the views i will express today are my own and are not necessarily those of my colleagues in the federal reserve system. aggregate economic activity despite heightened uncertainty, due to banking - sector stress, geopolitical instability, and the aftermath of the pandemic, i expect the economy to grow in the second quarter. the pace of growth, however, will be slower than what we observed in the first quarter, when real gdp increased at an annual rate of 1. 1 percent. my expectation is based mainly on data that showed weakening spending in recent months, and other data that imply moderating spending, including a sizable decline in april in consumer sentiment, as measured by the initial estimate of the university of michigan surveys of consumers. while my base case forecast for the u. s. economy is not a recession, i expect spending and gdp growth to remain quite slow over the rest of 2023, due to continued tight financial conditions, low consumer sentiment, and a decline in household savings that had built up after the onset of the pandemic. furthermore, i acknowledge that there are downside risks, among them the possibility that the degree of bank lending restraint and uncertainty could weigh on economic activity more than i expect. the labor market even as gdp growth has slowed, employment has continued to increase, and the current labor market is one of the strongest that u. s. workers have experienced in decades. the economy created 253, 000 jobs in april and the unemployment rate was 3. 4 percent, the lowest since 1969. job creation has been remarkably resilient to tighter financial conditions. employers have added an average of 280, 000 jobs a month this year. that's down from the 350, 000 a month created in the second half of 2022 but still robust. the tight labor market has boosted wages and other compensation for workers. wage growth has continued to run ahead of the pace consistent with 2 percent