This means that we have to look for ways to cooperate more closely with other supervisors across the functional lines of supervision in our system in such as way as to impact the incentives of a broader range of market participants. Fourth, we need to find ways to accelerate the pace at which the regulatory framework evolves to meet new challenges. The increase in the pace of change in financial innovation and in market structure requires greater agility among supervisors and regulators. Without this agility we risk lagging too far behind changes in the frontier of risk. This does not mean that each innovation needs to be met  2  BIS Review 54/2006  with a regulatory response. That would be an unfortunate and surely counterproductive impulse to encourage in regulation. But when a problem in the existing framework has significant implications for financial stability or efficiency, we need the flexibility and expertise required to act more quickly than we have been able to in some areas in the past. Fifth, we need to be creative in identifying areas where market-led initiatives, rather than new laws, regulations or formal supervisory guidance, are likely to be successful and possibly more efficient in achieving certain policy objectives. Where collective action problems limit the incentive or the ability of individual institutions to make the necessary investments in infrastructure, the official sector can facilitate or motivate cooperative effort among market participants to solve the problem.
While omicron was milder for many—and thankfully the wave subsided relatively quickly—it still caused terrible hardship for countless families. You can see the economic effects of the pandemic right here in New Jersey. What struck me this week as I met with New Jersey business, community, and political leaders was the different ways that COVID-19 affects local economies. Just a few miles from Jersey City, Port Newark and Port Elizabeth are humming with activity. But across the Turnpike, Newark Liberty International Airport has seen a big reduction in the number of flights and passengers relative to pre-pandemic trends. Likewise, the pandemic has led to empty office buildings and fewer travelers in New York City, which affects businesses here in New Jersey as well. Today I’m going to talk about how the economy has continued to recover despite the many disruptions and imbalances that COVID-19 has caused. I’ll also discuss the labor market and the rise in inflation. Then, I’ll describe how the Federal Reserve’s monetary policy is working to help restore balance and stability to the economy during these uncertain times. Economic Outlook Since it’s the Friday before a holiday weekend, I won’t test any of you on the functions of the Federal Reserve System. But I do want to take a moment to discuss the Fed’s dual mandate of promoting maximum employment and price stability. U.S. monetary policy is set by the FOMC, which is made up of the Board of Governors and five of the 12 presidents of the Federal Reserve Banks.