stanley fischer : recent monetary policy speech by mr stanley fischer, vice chair of the board of governors of the federal reserve system, at c peter mccolough series on international economics, council on foreign relations, new york city, 1 february 2016. * * * i am grateful to william english for his assistance. my comments today reflect my own views and are not an official position of the board of governors or the federal open market committee. i would like to thank the council on foreign relations for the kind invitation to come meet with all of you this morning. i am looking forward to a lively discussion. to get things started, i thought i could provide some background on recent monetary policy decisions. as you all know, at our december meeting my colleagues and i on the federal open market committee ( fomc ) decided to raise the target range for the federal funds rate by 1 / 4 percentage point, to 1 / 4 to 1 / 2 percent. 1 this increase came after seven years during which we kept the federal funds rate at what we call the elb - - the effective lower bound. this ultralow rate was in keeping with our congressional mandate to pursue a monetary policy that fosters maximum employment and price stability, which we define as 2 percent inflation. our decision in december was based on the substantial improvement in the labor market and the committee's confidence that inflation would return to our 2 percent goal over the medium term. employment growth last year averaged a solid 220, 000 per month, and the unemployment rate declined from 5. 6 percent to 5. 0 percent over the course of 2015. inflation ran well below our target last year, held down by the transitory effects of declines in crude oil prices and also in the prices of non - oil imports. prices for these goods have fallen further and for longer than expected. once these oil and import prices stop falling and level out, their effects on inflation will dissipate, which is why we expect that inflation will rise to 2 percent over the medium term, supported by a further strengthening in labor market conditions. i would note that our monetary policy remains accommodative after the small increase in the federal funds rate adopted in december. and my colleagues and i anticipate that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate, and that the federal funds rate is likely to remain, for some time, below the levels that we expect to prevail in the longer run. given the

have been achieved by means of such a programme, it will be a rational decision to make the central bank responsible for maintaining price stability. the second point i want to stress concerning the price stability target concerns microeconomic functions of central banks. efficient operation of a payments system and supervision of the banking sector are two other basic functions of a central bank. these two functions can also be performed in a way that supports price stability targets : indeed, a sound, effective financial sector and payments system are necessary conditions for price stability. duties assumed by the central bank of turkey in the economy, which aims at price stability, should be consistent with the target. functions that conflict with the price stability target or which cause difficulties for the achievement of this target should not be assigned to the central bank. and this should be the basic theme of the bank ’ s medium and long - term strategic planning. [UNK] whether or not those functions assumed by the central bank as a result of such factors as the country ’ s geographic size, history, legal structure and degree of technological development operate as impediments to the achievement of stability targets, can be examined by means of several criteria. effective use of monetary policy is an absolute necessity for a central bank that takes price stability as its first priority. we must therefore review those functions of the central bank that interfere with the effectiveness of monetary policy. at this point, i would like to emphasise the importance of increasing the central bank ’ s control over its own balance sheet, which is one of the main conditions required for the effective implementation of policies, mainly monetary policy, that must be adopted in order to achieve the price stability target. over the past decade, substantial improvements have been visible in the central bank ’ s balance sheet, especially on the asset side. foreign assets increased, while domestic assets dropped sharply due to the decrease in loans to the public sector, including valuation accounts. the final step to be taken in this area will be to reduce, by law, the advances made by the central bank to the treasury to zero. pursuant to the protocol between the central bank and the treasury, signed in the second half of last year, the effectiveness of the monetary policies pursued by the central bank increased during this period. an amendment to our laws will ensure the continuance of this favourable condition. and the revision of the financial relationship between the central bank and the treasury and the increase in the central bank ’ s control over its balance sheet will aid the achievement of the price stability target.