bond issuance and mortgage lending in domestic currency and at longer maturities. the new instruments are also changing the distribution of risk. when entities in the emerging markets borrowed in foreign currencies, they bore the exchange rate risk while lenders bore default risk. this arrangement made the financial crises of the 1990s very costly : sharp currency depreciations caused the domestic - currency value of foreign - currency debt to balloon. with domestic - currency financing, lenders now bear most of the exchange rate risk. and with fixedrate bonds, the interest rate risk, too, is being shifted to the lenders. we would expect that emergingmarket borrowers would have to pay higher yields to compensate lenders for this additional risk. but yields on the new instruments have generally been moving down. for example, mexico, even with its history of macroeconomic instability, can borrow in pesos at a thirty - year maturity at roughly 8 percent. these low yields are part of a more general decline in compensation for risk in emerging markets, a trend also evidenced by low risk spreads on dollar - denominated bonds and rising stock prices. in part, this trend reflects the low volatility in international financial markets in recent years. however, it also reflects improvements in the economic policies and debt positions of emerging - market economies. in the past, an environment of low risk spreads contributed to overborrowing, booms, and then busts. so far, that cycle has not developed, and it is crucial that sound and prudent policies continue to guard against it's doing so. credible macroeconomic and financial policies in the emerging - market economies provide double benefits : they help keep borrowing costs low, and, in the event of a future retreat from risk by global investors, they will help the affected economies weather any ensuing financial turbulence. conclusion in conclusion, i believe that the current net flow of capital toward the industrial world is not in the longterm interest of the developing economies. to raise incomes and reduce poverty, the developing economies must boost their productivity, and that, in turn, will require complementing their large and growing labor forces with increasing quantities of capital. i would add that the current pattern of net capital flows is more the deviation than the norm. the developing economies in the aggregate swung into current account surplus only in the past decade. moreover, at present, only a subset of developing economies account for those surpluses, and even those are enjoying substantial gross capital inflows.

today, i will make the case that recent developments in commodity prices can be explained largely by rising global demand and disruptions to global supply rather than by federal reserve policy. moreover, empirical analysis suggests that these developments, at least thus far, are unlikely to have persistent effects on consumer inflation or to derail the recovery. critically, so long as longer - run inflation expectations remain stable, the increases seen thus far in commodity prices and headline consumer inflation are not likely, in my view, to become embedded in the wage and price setting process and therefore are not likely to warrant any substantial shift in the stance of monetary policy. an accommodative monetary policy continues to be appropriate because unemployment remains elevated, and, even now, measures of underlying inflation are i am indebted to board staff members christopher erceg, steven kamin, david lebow, andrew levin, trevor reeve, david reifschneider, stacey tevlin, and william wascher for their assistance in preparing these remarks. bis central bankers ’ speeches somewhat below the levels that fomc participants judge to be consistent, over the longer run, with our statutory mandate to promote maximum employment and price stability. while i continue to anticipate a gradual economic recovery in the context of price stability, i do recognize that further large and persistent increases in commodity prices could pose significant risks to both inflation and real activity that could necessitate a policy response. the fomc is determined to ensure that we never again repeat the experience of the late 1960s and 1970s, when the federal reserve did not respond forcefully enough to rising inflation and allowed longer - term inflation expectations to drift upward. consequently, we are paying close attention to the evolution of inflation and inflation expectations. sources of the recent rise in commodity prices let me now turn to a discussion of the sources of the recent increase in commodity prices. in my view, the run - up in the prices of crude oil, food, and other commodities we ’ ve seen over the past year can best be explained by the fundamentals of global supply and demand rather than by the stance of u. s. monetary policy. in particular, a rapid pace of expansion of the emerging market economies ( emes ), which played a major role in driving up commodity prices from 2002 to 2008, appears to be the key factor driving the more recent run - up as well. although real activity in the emes slowed appreciably immediately following the financial crisis, those economies resumed expanding