The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.
We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.
I and others were mistaken early on in saying that the subprime crisis would be contained. The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict.
Developments in financial markets can have broad economic effects felt by many outside the markets.
The financial crisis appears to be mostly behind us, and the economy seems to have stabilized and is expanding again.
Our mission, as set forth by the Congress is a critical one: to preserve price stability, to foster maximum sustainable growth in output and employment, and to promote a stable and efficient financial system that serves all Americans well and fairly.
The crisis in Europe has affected the U.S. economy by acting as a drag on our exports, weighing on business and consumer confidence, and pressuring U.S. financial markets and institutions.
Importantly, in the 1930s, in the Great Depression, the Federal Reserve, despite its mandate, was quite passive and, as a result, financial crisis became very severe, lasted essentially from 1929 to 1933.
Smart financial planning - such as budgeting, saving for emergencies, and preparing for retirement - can help households enjoy better lives while weathering financial shocks. Financial education can play a key role in getting to these outcomes.
Certainly there is no way to direct the effects of monetary policy at a single class of assets while leaving other financial markets and the broader economy untouched. One might as well try to perform brain surgery with a sledgehammer.
In the future, financial firms of any type whose failure would pose a systemic risk must accept especially close regulatory scrutiny of their risk-taking.
The public in many countries is understandably concerned by the commitment of substantial government resources to aid the financial industry when other industries receive little or no assistance. This disparate treatment, unappealing as it is, appears unavoidable.
The Federal Reserve has always recognized the importance of allowing markets to work, and government oversight of financial firms will never be fully effective without the aid of strong market discipline.
Under Chairman Greenspan, monetary policy has become increasingly transparent to the public and the financial markets, a trend that I strongly support.