With regard to the euro area as a whole, optimism among households and companies has been somewhat subdued in recent months, probably as a result of the crisis in Greece. However, the most recent survey in July indicates that optimism among companies is rising again, which may be due to the third loan programme for Greece appearing to be within reach. GDP growth in the euro area in the second quarter, compared with the same quarter last year, was 1.2 per cent according to our forecast. US developments still looking good We see continued signs of good economic growth in the United States. GDP rose by just over two per cent in the second quarter, compared with the same quarter last year, see Figure 7, entirely in line with our forecast. Household consumption remains strong. Exports also rose significantly in the second quarter despite the dollar appreciating for a period of time. The housing market is continuing to recover and this creates an increasing number of jobs. Unemployment fell to its lowest level since 2008. The US Federal Reserve signalled at the end of July that it still has plans to raise its policy rate this year. The labour market is expected to be able to develop better than was previously believed an only a “few” further improvements are needed before monetary policy may need to be tightened. However, although most signs are pointing in the right direction in the US economy, the recent statistics on wage developments have been at relatively low rates of increase.
Second, effective systemic risk oversight will require a broad range of expertise. This requires the right people, with experience operating in all the important areas of the financial system. In this regard, I believe that the Federal Reserve has an essential role to play. The Federal Reserve has experience and expertise in all three areas – it now oversees most of the largest U.S. financial institutions; it operates a major payments system and oversees several others; and it operates in the capital markets every day in managing its own portfolio and as an agent conducting Treasury securities auctions. Also, as the central bank, it backstops the financial system in its lender-of-last-resort role. Compared with where we were in late 2008 and early 2009, financial markets have stabilized, and the prospect of a collapse of the financial system and a second Great Depression now seems extremely remote. Even with this progress, however, credit remains tight, especially for small businesses and households. Economic growth has resumed, but unemployment has climbed to punishing levels. So while circumstances have improved, they are still very far from where we want them to be. We have no cause for celebration when the challenges facing so many businesses and households remain so daunting. Aggressive and extraordinary official interventions were imperative to bring about this nascent stabilization of our financial markets and economic recovery. The Federal Reserve has been at the center of many of these interventions.