for release on delivery 9 : 10 a. m. edt may 13, 2019 the federal reserve ’ s review of its monetary policy strategy, tools, and communication practices remarks by richard h. clarida vice chair board of governors of the federal reserve system at “ new england perspectives on fed policymaking : a ‘ fed listens ’ conference ” hosted by the federal reserve bank of boston boston, massachusetts may 13, 2019 i am pleased to attend this fed listens event providing a new england perspective for the federal reserve ’ s review of our monetary policy strategy, tools, and communication practices. 1 we are bringing open minds to our review and are seeking a broad range of perspectives. to us, it simply seems like good institutional practice to engage with a wide range of interested individuals and groups as part of a comprehensive approach to enhanced transparency and accountability. 2 motivation for the review the congress charged the federal reserve with achieving a dual mandate — maximum employment and price stability — and this review will take this mandate as given. we will also take as given that a 2 percent rate of inflation in the price index for personal consumption expenditures is the operational goal most consistent with our pricestability mandate. while we believe that our existing strategy, tools, and communications practices have generally served the public well, we are eager to evaluate ways they might be improved. that said, based on the experience of other central banks that have undertaken similar reviews, our review is more likely to produce evolution, not a revolution, in the way we conduct monetary policy. with the u. s. economy operating at or close to our maximum - employment and price - stability goals, now is an especially opportune time for this review. the unemployment rate is at a 50 - year low, and inflation is running close to our 2 percent objective. we want to ensure that we continue to meet our statutory goals in coming additional information about fed listens, including background information on the initiative and a listing of events around the country, is available on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / review - of - monetary - policy - strategy - tools - andcommunications - fed - listens - events. htm. fuhrer and others ( 2018 ) explore the desirability of comprehensive reviews of the monetary policy framework. they argue that such reviews may help the fed more effectively identify and implement needed changes. - 2years. in addition, we

indeed, a lesson drawn by the president ’ s working group from the 1998 crisis was that a lack of basic risk management, and the resulting ability of risk managers to avoid counterparty discipline, was an important factor that enabled key market participants to become so large that their troubles could disrupt entire markets. stress tests employ either historical data from asset price distributions or hypothetical scenarios that would provide insights into the downside financial risks associated with investments and associated hedging strategies. focusing market participants on the structure of stress, and thus their risks beyond the range of recent historical experience, might assist in limiting the affects of a highly infrequent but significantly costly tail event. the regulatory capital framework proposed in basel ii would require the largest internationally active banking organizations to enhance measurement and management of their risks, including credit risk and operational risk. it would also require these entities to have rigorous processes for assessing overall capital adequacy in relation to their total risk profile and to publicly disclose information on their risk profile. because such actions would likely provide market participants with a better sense of how others might act during a crisis, these actions would likely help mitigate the adverse consequences created by financial market turmoil. risk cannot be managed if participants are uncertain about their exposures to counterparty credit risk and to changes in prices. it is important for trades to be cleared and settled when expected at the agreed upon price with the anticipated counterparties. as a result, the central bank must promote robust payment and settlement systems. sound risk - management practices and stress testing by operators of the settlement infrastructure are critically important in this domain. if payment and settlement systems have adequate collateral and liquidity to settle during turbulent periods, they reduce the threat of contagion across institutions and markets. to this end, the federal reserve actively participates in international groups, such as the committee on payment and settlement systems, that identify and promulgate best practices. counterparty discipline, sound risk management, and strong and resilient clearing and settlement are all in the interest of private parties. nonetheless, government has a role to play, especially when it senses moral hazard is weakening market discipline on risk taking and leaving the broader interests of society inadequately protected. regulators may need to insist on minimal capital levels and on actions to strengthen private systems. in addition, they may need to work with disparate private parties and help market competitors take collective actions to solve problems that such competitors might otherwise find difficult to solve by themselves. for example, the federal reserve board recently