alberto g musalem : us macroeconomic and regulatory developments and emerging market economies remarks by mr alberto g musalem, executive vice president of the integrated policy analysis group of the federal reserve bank of new york, at the international financial conference annual meeting, cartagena, colombia, 9 march 2015. * * * thank you for the invitation to speak here today. it has been a pleasure to attend this conference, and to have the opportunity to exchange views with many of you. my remarks today will focus on the potential effects of the u. s. outlook and policy for emerging market economies. i will make three main points. • the u. s. economy appears likely to make further progress toward the federal open market committee ’ s ( fomc ) objectives of maximum sustainable employment and price stability. this actual and prospective improvement underlies market expectations that the fomc will begin raising the federal funds rate sometime later this year. • emerging market economies ( emes ) have generally performed well during u. s. tightening cycles, especially when such policy shifts are supported by effective communication in the context of u. s. growth. • there has been notable progress in improving the safety and soundness of the international and u. s. financial systems, to better support financial stability and economic growth. before i turn to the specifics, let me remind you that what i say today reflects my own views, and not necessarily those of the federal reserve bank of new york or the federal reserve system. since the end of the great recession almost six years ago, u. s. growth has averaged a somewhat disappointing 2. 3 percent. but growth has picked up recently, and the latest blue chip forecast is for growth to average slightly below 3 percent over the next year. there are good reasons to think that a period of stronger growth can be sustained. • household balance sheets are in much improved condition, with total household liabilities well below their 2008 peak, and debt service burdens at the lowest share of disposable income in more than 30 years. moreover, consumers are benefitting from the positive wealth effect of higher house and equity prices. • labor market improvement has picked up pace, with payrolls gains over the last several months the strongest since the mid - 1990s. workers are finally beginning to see at least modest real wage gains. and the u. s. unemployment rate has fallen to the lowest level since mid - 2008. • the recent drop in oil prices is providing a significant boost to

a useful catch - all term for this set of policies, it masks the fact that central banks make different choices in the assets they buy to expand their balance sheets. 6 central bank laws specifying which assets can be purchased and held outright vary, although nearly all central banks can buy and hold the debt issued by their sovereign. 7 indeed, most of the empirical work on the effectiveness of lsaps is based on the analysis of sovereign debt purchases. more recently, a number of central banks have extended their purchases into the corporate debt and asset - backed securities markets. the federal reserve act does not permit the purchase of privately issued debt such as corporate debt or privately issued abs. while this might appear to be a constraint for the federal reserve, purchases of non - sovereign debt by other central banks have been small — both in size and as a percentage of gdp — compared with the federal reserve ’ s purchases of agency mbs, which are guaranteed by federal agencies and can affect private borrowing rates. 8 in expanding their balance sheets through asset purchases, central banks must consider how their choice of assets — for example, sovereign debt, corporate bonds, or federal agency debt — will affect the policy transmission mechanism. central banks must also take into account any implementation challenges related to executing in a given market. there are many broad transmission channels through which an lsap program can provide additional monetary accommodation : increasing the monetary base and central bank liabilities — the qe channel reinforcing that interest rates will remain low — the signaling channel9 changing the quantity and mix of financial assets held by the private sector — the portfolio balance channel taking interest rate risk out of the private sector — the duration channel taking credit risk out of the private sector — the credit channel taking prepayment risk out of the private sector — the prepayment channel improving market function — the market function channel the purchases of different assets will have different degrees of impact across these channels. for example, sovereign assets will generally work primarily through the first four channels, while corporate bonds would also work through the credit channel and mbs would also work through the prepayment channel. for these first six channels, one can argue that it is the expected stock of security holdings to be purchased by a central bank that chiefly determines the amount of accommodation — that is, the impact the central bank ’ s purchases are expected to have on the size and duration of assets available to the public. alternatively, for the market function channel, the “ flow ” effects are most important