states the financial crisis and its aftermath have posed severe challenges around the globe, particularly in the advanced industrial economies. thus far i have reviewed some of those challenges, offered some diagnoses for the slow economic recovery in the united states, and briefly discussed the policy response by the federal reserve. however, this conference is focused on longer - run economic growth, and appropriately so, given the fundamental importance of long - term growth rates in the determination of living standards. in that spirit, let me turn now to a brief discussion of the longer - run prospects for the u. s. economy and the role of economic policy in shaping those prospects. notwithstanding the severe difficulties we currently face, i do not expect the long - run growth potential of the u. s. economy to be materially affected by the crisis and the recession if – and i stress if – our country takes the necessary steps to secure that outcome. over the medium term, housing activity will stabilize and begin to grow again, if for no other reason than that ongoing population growth and household formation will ultimately demand it. good, proactive housing policies could help speed that process. financial markets and institutions have already made considerable progress toward normalization, and i anticipate that the financial sector will continue to adapt to ongoing reforms while still performing its vital intermediation functions. households will continue to strengthen their balance sheets, a process that will be sped up considerably if the recovery accelerates but that will move forward in any case. businesses will continue to invest in new capital, adopt new technologies, and build on the productivity gains of the past several years. i have confidence that our european colleagues fully appreciate what is at stake in the difficult issues they are now confronting and that, over time, they will take all necessary and appropriate steps to address those issues effectively and comprehensively. this economic healing will take a while, and there may be setbacks along the way. moreover, we will need to remain alert to risks to the recovery, including financial risks. however, with one possible exception on which i will elaborate in a moment, the healing process should not leave major scars. notwithstanding the trauma of the crisis and the recession, the u. s. economy remains the largest in the world, with a highly diverse mix of industries and a degree of international competitiveness that, if anything, has improved in recent years. our economy retains its traditional advantages of a strong market orientation, a robust entrepreneurial culture, and flexible capital and labor markets. and

its way out of our fiscal imbalances, but a more productive economy will ease the tradeoffs that we face. finally, and perhaps most challenging, the country would be well served by a better process for making fiscal decisions. the negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold u. s. financial assets or to make direct investments in job - creating u. s. businesses. although details would have to be negotiated, fiscal policymakers could consider developing a more effective process that sets clear and transparent budget goals, together with budget mechanisms to establish the credibility of those goals. of course, formal budget goals and mechanisms do not replace the need for fiscal policymakers to make the difficult choices that are needed to put the country ’ s fiscal house in order, which means that public understanding of and support for the goals of fiscal policy are crucial. economic policymakers face a range of difficult decisions, relating to both the short - run and long - run challenges we face. i have no doubt, however, that those challenges can be met, and that the fundamental strengths of our economy will ultimately reassert themselves. the federal reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability. bis central bankers ’ speeches