foreign exchange swap market, which made it difficult to obtain funds in foreign currency, regardless of individual financial institution ’ s creditworthiness. smooth liquiditiy management by a financial institution cannot be achieved only by using its own cash, deposits, and borrowing capability. it also depends on the condition of market liquidity of financial assets. however, if a financial institution tries to secure its liquidity level sufficient enough to cope with an extreme stress situation, the financial institution has to hold sizable amount of risk free and short - term financial assets and thus cannot pursue its intrinsic function of financial intermediation. in that context, liquidity management by a financial institution itself, market - level efforts to maintain market liquidity, and proper exercise of the lender of last resort function by a central bank, would be the three indispensable factors. with respect to liquidity management by a financial institution itself, the basel committee on banking supervision released a guidance paper on liquidity management last september, and there it presented sound practices for enhancing liquidity management by conducting appropriate liquidity management, including that of foreign currencies, according to the characteristics of each market in which financial institutions operate. importance of improving market infrastructure the third lesson is the importance of improving the infrastructure of the market and the payment and settlement system, which is derived from the aforementioned perspective of maintaining market liquidity. the sudden collapse of lehman brothers brought a state of turmoil into the japanese financial markets. in particular, the number of settlement failures increased in the jgb repo market, which contributed to declining liquidity in the jgb market. however, without the efforts in recent years by the market participants and the central banks to improve the infrastructure of the market and the payment and settlement system including the establishment of clearing mechanism in the securities market such as the japan government bond clearing corporation ( jgbcc ), default in the repo market might have had a contagion effect on the entire jgb market and the market turmoil could have been much more severe. a good example is the scheme for foreign exchange settlement, which is called “ cls, ” or continuous linked settlement. the cls links the payment systems of countries and makes a simultaneous payment of a pair of currencies associated with foreign exchange trading, which reduces foreign exchange settlement risk. while it is hard to win understanding in normal times, the experience since the collapse of lehman brothers suggests the importance of a scheme to properly manage counterparty risk. given the current situation, its

turned out to be more resilient in adapting to the virus, and more responsive to monetary and fiscal policy support, than many predicted. indeed, it is worth highlighting that in the baseline projections of the federal open market committee ( fomc ) summarized in the latest summary of economic projections ( sep ), most of my colleagues and i revised up our outlook for the economy over the medium term, projecting a relatively rapid return to levels of employment and inflation consistent with the federal reserve ’ s statutory mandate as compared with the recovery from the global financial crisis ( gfc ). 2 in particular, the median fomc participant projects that by the end of 2023 — a little less than three years from now — the unemployment rate will have fallen below 4 percent, and pce ( personal consumption expenditures ) inflation will have returned to 2 percent. following the gfc, it took more than eight years for employment and inflation to return to similar mandateconsistent levels. while the recent surge in new covid cases and hospitalizations is cause for concern and a source of downside risk to the very near - term outlook, the welcome news on the development of several effective vaccines indicates to me that the prospects for the economy in 2021 and beyond have brightened and the downside risk to the outlook has diminished. the two new sep charts that we released for the first time following the december fomc meeting speak to these issues by providing information on how the risks and uncertainties that surround the modal or baseline projections have evolved over the most recent sep is available on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / fomccalendars. htm. - 3time. while nearly all participants continued to judge that the level of uncertainty about the economic outlook remains elevated, fewer participants saw the balance of risks as weighted to the downside than in september. although a little more than half of participants judged risks to be broadly balanced for economic activity, a similar number continued to see risks weighted to the downside for inflation. the latest fomc decision and the new monetary policy framework at our most recent fomc meetings, the committee made important changes to our policy statement that upgraded our forward guidance about the future path of the federal funds rate and asset purchases, and that also provided unprecedented information about our policy reaction function. as announced in the september statement and reiterated in november and december, with inflation running persistently below 2