Vice Chairman Stanley Fischer At the Per Jacobsson Foundation Lecture, 2014 Annual Meetings of the International Monetary Fund and the World Bank Group, Washington, D.C. October 11, 2014

“Although the U.S. share of world GDP has gradually declined since the mid-20th century, the broader importance of the United States to the global economy has diminished less, or possibly not at all, as a result of increasing financial linkages over the same period. In particular, U.S. residents’ ownership of foreign assets has risen to nearly $25 trillion (more than 140 percent of annual U.S. GDP), reflecting the leading role of U.S. capital markets in cross-border finance. Total foreign investment in the United States is even larger, at more than $30 trillion. U.S. Treasury securities are a key component of these external liabilities: As the world’s favorite safe asset, they are the preferred form of collateral for a range of financial contracts, and they also account for more than half of other countries’ foreign reserves. In a progressively integrating world economy and financial system, a central bank cannot ignore developments beyond its country’s borders, and the Fed is no exception. This is true even though the Fed’s statutory objectives are defined as specific goals for the U.S. economy. In particular, the Federal Reserve’s objectives are given by its dual mandate to pursue maximum sustainable employment and price stability, and our policy decisions are targeted to achieve these dual objectives. Hence, at first blush, it may seem that there is little need for Fed policymakers to pay attention to developments outside the United States.”