The most outstanding development of the past several months has been the attenuation of some of the  BIS central bankers’ speeches  1  inflationary risks then identified. International commodity prices ceased to increase and the propagation of specific price shocks has been limited. This and monetary policy decisions have collaborated to ease fears of a further inflationary acceleration that we felt in March. Accordingly, private inflation expectations show a decline in the last two months, although some remain above the target (figure 2). First-quarter data showed a fast expansion of domestic output and demand, exceeding March’s expectations. Partial indicators for the second quarter reflect an economy that continues to grow strongly but shows some recent moderation. Worth noting is the strong dynamism of private consumption and, to a lesser extent, the machinery and equipment component of investment. Consumption evolves in line with fundamentals, particularly the increase in household income, given that both employment and wages continue on the rise. Financial conditions are still favorable. The baseline scenario assumes that GDP will grow this year between 6 percent and 7 percent. This range is higher than foreseen in March, consistently with the upward bias then identified. This higher growth forecast is based on actual first-quarter figures that exceeded estimates. For the rest of the year, the pace of expansion of demand will moderate as forecast in March. In particular, the speed of growth in the GDP of sectors other than natural resources will quickly approach the trend rate, which is still estimated at five percent.
But just as a town ravaged by flooding will seek to rebuild in ways that help it withstand the next big storm, so, too, must we think about how to shore up the Treasury market so it can better endure the next big shock. Today, I’m going to touch on the notable market disruptions that have taken place over the past decade. Then, I’ll discuss the imperative of a resilient Treasury market. I’ll close by challenging all of us to come together to prepare for the future. As always, before I continue, I must give the standard Fed disclaimer that the views I express here today are mine alone and do not necessarily reflect those of the Federal Open Market Committee or others in the Federal Reserve System. Look Back to Prepare for the Future A well-functioning U.S. Treasury market is critically important for our economy and, in fact, the entire world. It enables the safe and stable flow of capital and credit to households, businesses, and governments. It serves as a primary benchmark for pricing in other financial markets, both domestic and global. Last, but definitely not least, it’s vitally important for the effective transmission of monetary policy to the broader financial system and to the economy. Thankfully, most days—most years—the Treasury and related markets function incredibly well. But in the past decade, these markets have experienced three abrupt and notable disruptions, each of increasing severity.