4 The Fed's interest in promoting financial stability is thus intimately connected with its macroeconomic objectives: maximum sustainable employment and price stability. From the founding of the Federal Reserve to the present, a key question confronts policymakers and market participants alike: What is financial stability? Perhaps it is better to address what it is not.
In my view, financial stability does not demand a state of lessened financial market movements, a state of muted volatility. More often than not, financial markets process new information efficiently: If some unexpected news arrives, markets adjust, sometimes even sharply, and they should. These types of movements are healthy, even necessary. They serve to quickly bring prices in line with underlying fundamentals.