. i would now like to elaborate on some of the channels through which foreign developments more generally might be expected to affect the outlook for the u. s. economy. 3 channels and linkages perhaps the most direct link between economic conditions abroad and in the united states is foreign demand for u. s. exports. to be sure, exports account for a smaller share of the u. s. economy — about 12 percent — than the global average of about 30 percent. even so, when foreign demand for u. s. exports falls, the effect on u. s. production is evident. the pace of economic expansion abroad is a key determinant of the demand for u. s. exports. most recently, the international monetary fund projects foreign gdp growth in 2019 to have slowed to its weakest pace since the financial crisis. largely as a result, real u. s. exports been about flat over the past year, an unusual development outside of recession. u. s. exports also have slowed as a result of a decline for further discussion, see richard h. clarida ( 2019 ), “ global shocks and the u. s. economy, ” speech delivered at the bdf symposium and 34th suerf colloquium, sponsored by banque de france and the european money and finance forum, paris, march 28, https : / / www. federalreserve. gov / newsevents / speech / clarida20190328a. htm. - 4in exports to china following the imposition of tariffs on u. s. goods and also more recently because of production - related disruptions in aircraft deliveries. the pace of economic growth in our major trading partners affects the demand for u. s. exports not only directly, but also indirectly by influencing the value of the dollar. when foreign growth weakens and central banks abroad ease monetary policy to support their domestic economies, returns on dollar assets appear relatively more attractive, capital flows into u. s. markets, and these flows will tend to boost the foreign exchange value of the dollar. in addition, elevated uncertainties about the global outlook and / or other evidence of financial stress abroad can also drive up the value of the dollar, as investors flow into the safe haven traditionally provided by u. s. assets. a stronger dollar, for either reason, makes u. s. exports more expensive for foreign buyers, makes u. s. imports from abroad more attractive to u. s. purchasers

basis points currently. 9 thus, balance sheet normalization should be associated with higher term premiums, which in turn, other things held equal, should be associated with higher long - term treasury yields. most studies find that higher treasury yields also affect yields and prices of other securities : increasing interest rates faced by private - sector borrowers, making dollar - denominated assets more attractive, which tends to boost the exchange value of the dollar, and making fixed - income assets more attractive relative to stocks, tending to depress share prices. together, these channels contribute to a tightening in financial conditions. 10 these effects are, of course, in many respects, similar to the effects of increases in short - term interest rates. 11 thus, away from the zero lower bound, the two tools are, to a large extent, substitutes for one another. as a result, the fomc will be in the unfamiliar posture of having two tools available for adjusting monetary policy. it is, therefore, important to clarify how they will be used in relation to each other. while, under most circumstances, the two tools are largely substitutes for one another in terms of their effects on the economy the federal funds rate is the tool with which we have the most experience. and using two tools at once could easily foster confusion. thus, in my view, predictability, precision, and clarity of communications all argue in favor of focusing policy on the federal funds rate as the single active tool. in this framework, the balance sheet essentially would remain subordinate to the federal funds rate. under the subordinated balance sheet approach, once the change in reinvestment policy is triggered, the balance sheet would essentially be set on autopilot to shrink passively until it reaches a neutral level, expanding in line with the demand for currency thereafter. i favor an approach that would gradually and predictably increase the maximum amount of securities the market will be required to absorb each month, while avoiding spikes. thus, in an abundance of caution, i prefer to cap monthly redemptions at a pace that gradually increases over a fixed period. in addition, i would be inclined to follow a similar approach in managing the reduction of the holdings of treasury securities and mortgage - backed securities ( mbs ), calibrated according to their particular characteristics. the committee ’ s policy normalization principles have made clear that the federal reserve “ will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively. " 12 over time