. some of the weakness in economic activity in the first half of the year was due to temporary factors such as the hit to household income from higher food and energy prices, and supply chain disruptions following the tragic earthquake in japan. these restraining forces have abated and thus, we should see stronger growth in the second half. but it is clear that not all of the weakness was due to these one - time factors – and in light of this, i have revised down my expectations for the pace of recovery going forward. on the inflation front, the committee noted that inflation has moderated recently as energy and commodity prices have declined from their peaks – having picked up earlier in the year, mainly reflecting higher prices for commodities and imported goods, as well as the supply disruptions from japan. longer term inflation expectations remain stable, and the committee now expects inflation to settle over the coming quarters at levels at or below those consistent with our mandate to promote full employment and price stability. in light of the current outlook, the fomc in its statement noted that we now anticipate that we are likely to keep short - term interest rates exceptionally low at least through mid - 2013. we also discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. further details on the discussion at the meeting will be available when the minutes are published later this month. i will not comment on monetary policy any further today. following the release of the fomc ’ s statement, market interest rates generally moved lower, which should help provide some additional support for economic activity and jobs. i would note, however, that conditions remain unsettled and the equity market in particular has been quite volatile recently. regional economic conditions so how is our region doing? let me start by saying that new jersey is well - positioned for growth. the state has a population of 8. 8 million, the 11th largest state, and despite the fact that this is a fairly mature region, the state ’ s population expanded by 4. 5 percent over the past decade. more than 40 percent of the population 25 years of age and older in the state have a college degree, a full 5 percentage points higher than the national average. our population is quite ethnically diverse : roughly 20 percent of the state ’ s residents were born abroad, and that share is even higher in essex and bergen counties. significant numbers of the foreign born residents in the state come from india, mexico, the philippines, the dominican republic

2 / 4 bis - central bankers'speeches 1. it is easy to understand the risk profile of some blended instruments such as guaranteed loans. but other blended instruments have more complex structures. it is difficult to create a universal framework for all blended instruments. 2. as i mentioned earlier, the risk does not disappear. it is shifted from one balance sheet to another. this other balance sheet sometimes sits in the domestic financial system and sometimes sits in another jurisdiction. for financial sector supervisors, this creates a significant level of complexity around how we think about the risk profile of blended finance. we need to understand the balance sheets of the institutions that we supervise but also of those institutions that provide risk insurance. many of our tools such as risk ratings and internal capacity adequacy are based on historical data. climate - related risks and those associated with new financial instruments require forward - looking analysis, which is often characterised by high levels of uncertainty. this often leads to a higher pricing of risk. global standard - setting bodies recognise this challenge and have prioritised climaterelated risks in their work plans. now to the last question. how do we mitigate against risks related to blended finance instruments? many efforts to improve climate - related information flows in financial markets and enhance reporting by financial institutions can help with scaling up blended finance by helping central banks to better understand the risks associated with these instruments and mitigate them more effectively. this, however, is impossible without greater international cooperation as risks shift from one jurisdiction to another. blended instruments will increase financial linkages and require a greater exchange of information across different jurisdictions. financial sector regulators need to develop new skills and research capabilities to understand the various implications of the climate transition on the financial system. more importantly, we need to understand how the combination of different structural changes is likely to impact financial stability. for example, the rapid deployment of artificial intelligence ( ai ), in addition to the climate transition, is likely to have profound effects on the financial system and generate significant financial innovation. scenario analysis and transition planning can help financial regulators in understanding future pathways and the associated risks. there have been advances and improvements but data quality and consistency need to be enhanced, particularly in emerging market and developing economies. in conclusion, we need a massive increase in financing for the climate transition but also to adjust to other structural challenges. central banks and financial regulators have an important role in ensuring that the financial system is resilient to shocks and scales up fundings. however, our efforts to increase blended