Rising affluence and a strong savings culture, coupled with increasing financial sophistication, will mean more Asians moving away from speculation in property and stocks, towards more systematic planning for wealth enhancement through a globally diversified portfolio of assets. 34. There are now more high net worth individuals in the Asia Pacific than in Europe. And they are younger – 41% of the high net worth individuals in the Asia Pacific are aged 45 years and below, compared to only 10% in North America. They have a longer time span for wealth accumulation, and a more global outlook in their investment strategies. At the same time, Asians are living longer and more Asian countries are seeing the need for welldesigned pension systems to provide adequate retirement incomes for their people. These pension funds will require professional management. 35. In the same vein, I expect the demand from the official sector for Asian financial assets to grow. Central banks and sovereign wealth funds will likely look to allocate more funds to Asian markets, both to diversify risk and to enhance returns. Speaking for the MAS, we have always invested our official foreign reserves in a highly diversified global portfolio. As Asian markets develop in depth and sophistication, our allocation to emerging markets, especially in Asia, will grow. 36. To be sure, asset management in Asia is not a one-way bet. Asian markets are more fragmented and harder to operate in, compared to the advanced economies.
We’ll continue to be transparent about our thinking about the economy and monetary policy. But, changing circumstances call for some changes in how the FOMC communicates its policy views. Now that interest rates are well away from zero and the economy is humming along, the case for strong forward guidance about future policy actions is becoming less compelling. For one, the future direction of policy will no longer be as clear as it was during the past few years. When interest rates were extremely low, it was obvious that the direction for rates was upward, toward more normal levels, and our forward guidance reinforced that point. At some point in the future, it will no longer be clear whether interest rates need to go up or down, and explicit forward guidance about the future path of policy will no longer be appropriate. In addition, as we have moved far away from near-zero interest rates, it makes sense to shift away from a focus on normalizing the stance of monetary policy relative to some benchmark “neutral” interest rate, often referred to as “r-star.” Now, I have spent a good deal of my career studying r-star and I find it to be a useful concept for describing the economy’s longer-run behavior. Having said that, at times r-star has actually gotten too much attention in commentary about Fed policy. Back when interest rates were well below neutral, r-star appropriately acted as a pole star for navigation.