In closing, I will again note that in the fall of last year, the United States,
indeed the world, confronted a financial crisis of a magnitude unseen for
generations. Concerted actions by the Federal Reserve and other policymakers
here and abroad helped avoid the worst outcomes. Nevertheless, the turmoil
dealt a severe blow to our economy from which we have only recently begun to
recover. The improvement in financial conditions this year and the resumption
of growth over the summer offer the hope and expectation of continued recovery
in the new year. However, significant headwinds remain, including tight credit
conditions and a weak job market.
The Federal Reserve has been aggressive in its efforts to stabilize our
financial system and to support economic activity. At some point, however, we
will need to unwind our accommodative policies in order to avoid higher
inflation in the future. I am confident we have both the tools and the
commitment to make that adjustment when it is needed and in a manner consistent
with our mandate to foster employment and price stability.
In the meantime, financial firms must do a better job of managing the risks of
their business, regulators--the Federal Reserve included--must complete a
thoroughgoing overhaul of their approach to supervision, and the Congress
should move forward in making needed changes to our system of financial
regulation to avoid a similar crisis in the future. In particular, we must
solve the problem of "too big to fail."
In sum, we have come a long way from the darkest period of the crisis, but we
have some distance yet to go. In the midst of some of the toughest days, in
October 2008, I said in a speech that I was confident that the American
economy, with its great intrinsic vitality, would emerge from that period with
renewed vigor.(8) I remain equally confident today.
(1) For more discussion, see Ben S. Bernanke (2009), "On the Outlook for the
Economy and Policy," speech delivered at the Economic Club of New York, New
York, N.Y., November 16,
(2) The three-month diffusion index for manufacturing--a measure of the breadth
of production changes across industry categories--stood at 63.8 percent in
September. See Board of Governors of the Federal Reserve System (2009),
Statistical Release G.17, "Industrial Production and Capacity Utilization,"
Table 6: Diffusion Indexes of Industrial Production (November 17),
(3) See Ben S. Bernanke (2009), "Reflections on a Year of Crisis," speech
delivered at "Financial Stability and Macroeconomic Policy," a symposium
sponsored by the Federal Reserve Bank of Kansas City, held in Jackson Hole,
Wyo., August 20-22,
(4) See Board of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency, and Office of
Thrift Supervision (2008), "Interagency Statement on Meeting the Needs of
Creditworthy Borrowers," joint press release, November 12,
www.federalreserve.gov/newsevents/press/bcreg/20081112a.htm; and Board of
Governors of the Federal Reserve System (2009), "Federal Reserve Adopts Policy
Statement Supporting Prudent Commercial Real Estate (CRE) Loan Workouts," press
release, October 30,
(5) See Board of Governors of the Federal Reserve System (2009), "Federal
Reserve, OCC, and FDIC Release Results of the Supervisory Capital Assessment
Program," press release, May 7,
www.federalreserve.gov/newsevents/press/bcreg/20090507a.htm; and Board of
Governors of the Federal Reserve System (2009), "Federal Reserve Board Makes
Announcement Regarding the Supervisory Capital Assessment Program (SCAP),"
press release, November 9,
(6) See Ben S. Bernanke (2009), "The Federal Reserve's Balance Sheet: An
Update," speech delivered at the Federal Reserve Board Conference on Key
Developments in Monetary Policy, Washington, October 8,
www.federalreserve.gov/newsevents/speech/bernanke20091008a.htm; and Ben S.
Bernanke (2009), "The Fed's Exit Strategy," Opinion, Wall Street Journal, July
(7) See Ben S. Bernanke (2009), "Financial Regulation and Supervision after the
Crisis: The Role of the Federal Reserve," speech delivered at the Federal
Reserve Bank of Boston 54th Economic Conference, held in Chatham, Mass.,
October 23, www.federalreserve.gov/newsevents/speech/bernanke20091023a.htm.
(8) See Ben S. Bernanke (2008), "Stabilizing the Financial Markets and the
Economy," speech delivered at the Economic Club of New York, New York, N.Y.,
October 15, www.federalreserve.gov/newsevents/speech/bernanke20081015a.htm.
(Washington newsroom; 202-898-8310)