A growing number of financial and non-financial institutions have embraced derivatives as an integral part of their risk capital allocation and profit maximization. In particular, the profitability of derivative products has been a major factor in the significant gain in the finance industry’s share of American corporate output during the past decade - a reflection of their value to non-financial industry.
We should seek to ensure that this does not translate into a lack of confidence in the Fed to maintain price stability. As we work to exit from this period of extreme monetary accommodation in a way that neither leads to higher inflation nor risks undermining the recovery, the public’s confidence in the Fed’s commitment to price stability will be crucial.