tightening might have on the u. s. economy is not yet clear, and this uncertainty complicates economic forecasts. short - term interest rates are 5 percentage points higher than they were a little over a year ago. history shows that monetary policy works with long and variable lags, and that a year is not a long enough period for demand to feel the full effect of higher interest rates. while my base case forecast for the u. s. economy is not a recession, higher interest rates and lower earnings could test the ability of businesses to service debt. in addition, and perhaps more in focus given the recent events affecting certain areas of the banking sector, higher interest rates could further exacerbate stress at banking organizations, especially those that are highly exposed to longer - duration assets and have a relatively high ratio of uninsured deposits to total deposits. since late last year, the federal open market committee has slowed the pace of rate hikes as we have approached a stance of monetary policy that will be sufficiently restrictive to return inflation to 2 percent over time. a decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this 2 / 4 bis - central bankers'speeches cycle. indeed, skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming. with that said, let me turn to the topics covered in our two sessions this afternoon. current financial stability risks and vulnerabilities during the first session this afternoon, you will be discussing current financial stability risks and vulnerabilities as well as historical parallels. as we have seen in the past couple of months, the failure of a large banking organization, even if not deemed individually systemically important under our regulations, can cause markets to reassess the condition of other firms with roughly similar size and risk profiles, and the resulting spillovers can generate significant negative consequences for the broader economy. as i mentioned earlier, conditions in the banking sector have stabilized. moreover, broader u. s. financial markets and the overwhelming majority of financial institutions have been resilient to the recent stress events. the resilience of the financial system to current salient risks can be appreciated by contrasting it to the 2008 global financial crisis. leading up to the global financial crisis, housing markets were substantially overvalued, mortgage underwriting standards were weak, and home mortgages were at substantial risk

philip n jefferson : financial stability and the us economy remarks by mr philip n jefferson, member of the board of governors of the federal reserve system, at the 22nd annual international conference on policy challenges for the financial sector, washington dc, 31 may 2023. * * * good afternoon, everyone. it is a pleasure to be here and share my perspective on some key challenges policymakers currently face. before i begin, 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. this conference is timely and relevant. among the topics covered are current financial stability risks and vulnerabilities, potential developments in banking supervision and regulation, and operational risk and resilience under evolving technologies. during the next three days, you will have an opportunity to engage in stimulating discussions with expert panelists on these and other critical issues. today, i would like to share with you, at a high level, some of the federal reserve's recent and ongoing initiatives on a few of these issues. i also want to share with you an overview of the federal reserve's approach toward financial stability and my thoughts on interactions between the economic outlook and financial stability. my remarks will be u. s. focused, fully understanding that other countries monitor financial stability similarly and that the health of the u. s. economy and financial system has an impact on other countries, and vice versa. the federal reserve's approach toward financial stability a stable financial system is resilient even in the face of sharp downturns or stress events. it provides households and businesses with the financing they need to participate and thrive in a well - functioning economy. it is difficult to anticipate or prevent shocks, but sound policies can mitigate their impact. at the federal reserve, we work hard to make sure that an initial shock in one area of the financial system does not spill over to other markets or institutions and cause severe or widespread strains. such spillovers could disrupt the flow of credit and cause outsized declines in employment and economic activity. it is not our role, nor should it be our objective, to influence the allocation of credit within or across sectors of the u. s. economy. financial and nonfinancial institutions and households are linked through a web of relationships. the economic activities of households and businesses depend on the strength of financial institutions'balance sheets, as households and businesses obtain funding through the financial sector. similarly, the health of the