For the Federal Reserve, this means that we will devote even greater attention to the institutions that now constitute the center of our financial system, as well as to the clearance and settlement backbone. It means we need to make a greater investment in looking at risks in the financial system as a whole, not just those that have their origin in banks. And it means that we will have to continue to intensify our cooperation with other supervisory and regulatory authorities. The U.S. financial system is of course only as strong as our economy as a whole. Overall, the fundamentals of the U.S. economy look quite strong. But the size of our fiscal deficit, and the risks posed by our large external imbalance, place a greater burden than would otherwise be the case on the credibility of U.S. monetary policy. In this context, it is particularly important that we preserve the high degree of confidence that now seems to exist that U.S. monetary policy will respond appropriately to the evolving balance of risks in the overall economic outlook, and particularly that we will maintain price stability. This is critically important to sustaining the current expansion, and to sustaining confidence in U.S. financial markets over time. And getting monetary policy right is one of the most important things we can to do contribute to financial stability as well. BIS Review 33/2004  5
We expect largely unchanged unit labour costs over the next three years due to low wage increases and rising productivity. We also expect the Swedish krona to continue to strengthen (Figure 22). This will mean that inflationary pressure will be low during the forecast period. Repo rate at all-time low At the monetary policy meeting in December, the Riksbank decided to maintain the repo rate at the all-time low of 0.25 per cent, standing fast by its previous assessment that it will not be necessary to raise the repo rate until the autumn of 2010 (Figure 23). The background to this decision is that a low level of resource utilisation, together with a slow development of prices and wages, is expected over the next three years. In order to meet the inflation target and to support economic recovery, the repo rate must remain low for a long time. This is the same repo rate path that we adopted as long ago as July. Since then, the forecasts for GDP growth and employment have certainly been revised upwards. The forecast for resource utilisation has accordingly been revised upwards. However, at the same time, the forecasts for inflation have been revised downwards. These two changes largely cancel each other out as regards their effect on monetary policy. Wage formation has functioned well for more than a decade Wage formation has functioned well over the last ten to fifteen years. The development of wages has been compatible with low and stable inflation.