The asset purchase programs have helped to keep longer-term private interest rates relatively low, and the expansion of liquidity facilities has helped to restore more normal market function. However, this does not mean that the Federal Reserve balance-sheet expansion and Treasury purchase program are cost free, only that the benefits of these programs, individually and collectively, are seen as exceeding the potential costs. Nevertheless, there are three issues on the cost side that deserve note. First, policymakers need to take seriously any concerns that the Fed’s actions might conceivably lead to an inflation problem. After all, inflation is driven mainly by two variables – inflation expectations and the degree of pressure on resources. It would be potentially very damaging if any of the Fed’s programs were to unhinge inflation expectations. One risk with embarking on the Treasury purchase program was that it had the potential to create the misperception that the Fed was providing the fiscal authorities with the means to fund a more stimulative fiscal policy than they would otherwise have been able to finance. This misperception around the intent and purpose of the program could have undermined the Fed’s credibility and triggered a damaging rise in inflation expectations. Indeed, one of my primary goals for this speech is to make it clear that we have not compromised our ability or our commitment to keep inflation in check. Keeping inflation and inflation expectations well anchored around a low level is essential.
It is almost impossible for those who are not undertaking full-time studies on the subject to keep pace with these developments. Yet, all of us who are interested in systems that stimulate business and keep the wheels of economies moving at a rapid space, would continue to have a strong interest in the subject. I am also hopeful that, the banking and financial community will continue to promote and foster these studies and practices since these provide the lubrication for the smooth functioning of our complicated financial systems in our ever-changing corporate regimes. We also know that a large portion of global business is in the banking sector. In addition, all business entities, maintain direct relationships with banks and financial institutions. In that context, the preeminent position that is applicable to the banks and enjoyed by them cannot be over-emphasized or under-estimated. Therefore, our efforts to enhance the governance capabilities and capacities within banks and financial institutions have to be at the forefront of our agendas. The trend in the world of targeting governance practices in the banking and financial sector to be at the cutting edge of prevailing practices worldwide is a significant step in the right direction and should continue to be so in the future as well. Let us therefore together and collectively dedicate ourselves to promote and apply good Corporate Governance principles and practices in our respective banking and financial sectors.