Without a credible monetary policy, the króna would undoubtedly have depreciated by more than it actually did last year, which could have undermined financial stability. In other respects the authorities – in particular the Financial Supervisory Authority and the Central Bank – responded with even closer monitoring of the banks’ position, not least their financing, liquidity and risk management. The Bank remained especially alert until autumn 2006 and strengthened its contingency plans at the same time. The banks were very well aware of this close monitoring and cooperated fully. At the beginning of 2006 a Memorandum of Understanding on contingencies, which had been under preparation for some time, was signed between the government ministries responsible for financial markets, the Central Bank and the Financial Supervisory Authority, and a contingency exercise was held which actually had been planned well in advance. The Central Bank kept a close watch on market developments and the views of foreign commentators. Along with other government authorities and the Financial Supervisory Authority it communicated a wealth of information and held numerous meetings with foreign analysts and media in spring 2006, in Iceland and abroad. At the beginning of 2006 the Central Bank announced a decision to boost its foreign reserves. This was done later in the year with an international issue of five-year Treasury Eurobonds. The proceeds were deposited in the Central Bank, more than doubling the reserves from the equivalent of 7% of GDP to almost 15%. The proceeds from the loan will not be used for other purposes.
I met with government officials to discuss the Commonwealth’s economic plan and pandemic recovery. I also heard from executives about how the banking sector is faring. And I met with leaders of cooperativas to hear about what they're doing to help residents improve their access to credit and financial services. I took a short flight here from San Juan after a full day of engagements yesterday, and I spent the earlier part of this morning at the Aeronautical and Aerospace Institute of Puerto Rico, where I learned about this growing industry. Needless to say, the views from the ground and the air have been delightful. The U.S. economy has experienced a tremendous rebound since the darkest days at the onset of the pandemic. But now, inflation is sky-high, and it is the number one danger to the overall health and stability of a well-functioning economy. The war in Ukraine and the recent lockdowns in China, on top of the ongoing supply challenges and demand shifts, have led to inflation rates we have not seen in four decades. The priority for monetary policy is clear. The Federal Reserve is strongly committed to bringing inflation back down to our 2 percent longer-run goal. Price stability is absolutely essential for the economy to achieve its potential and sustain maximum employment over the medium term. I want to be clear: this is not an easy task. We must be resolute, and we cannot fall short.