Daily Links Archives: March, 2011

Bloomberg writes "European Bank Debt Dominates U.S. Money-Market Fund Assets". The piece says, "European banks dominated a list of top issuers to U.S. prime money-market funds, accounting for 44 percent of assets, according to a report by Fitch Ratings. Rabobank Group, based in Utrecht, Netherlands, was the biggest issuer, selling 3.4 percent of the funds' assets as of the end of February, followed by Paris-based BNP Paribas (BNP) SA at 3.2 percent and Societe General SA at 2.4 percent, Fitch said. No U.S. banks were in the top 10." Bloomberg quotes Peter Crane, president of money fund research firm Crane Data LLC in Westborough, Massachusetts, "The concentration raises some concerns, but you'll notice the money funds haven't been in Ireland for well over a year or in Spain for months. By the time you read about a country in the headlines, the money funds are usually long gone." The article adds, "Among European nations, funds had the highest concentration in debt from French banks at 12 percent, followed by U.K. banks at 8.6 percent, according to the Fitch report. Funds had no holdings in Ireland or Portugal at the end of February, while Spanish bank holdings fell to 0.2 percent from 0.5 percent in December."

Investment News writes "Basel-like regs for money markets? It could happen". The article says, "To prevent another instance of a money market fund 'breaking the buck,' the Securities and Exchange Commission is discussing placing capital requirements on such funds. The idea could trump the Investment Company Institute's proposal to create a liquidity bank, to which all money market funds would contribute. The bank would help backstop funds in case of an investor panic.... Although the fund industry 'largely supports' the notion [of the liquidity exchange bank], the support has been 'somewhat tentative,' Robert Plaze, associate director of the Division of Investment Management at the SEC, said via a video hookup during a panel discussion at the ICI's Mutual Funds and Investment Management Conference, which is being held this week in Palm Desert, Calif. Given that tepid response, the SEC is discussing other ideas to address the issue, such as those suggested by Fidelity Investments and BlackRock Inc., both of which opposed the notion of a liquidity bank in their comment letters to the President's Working Group. Under the Fidelity proposal, money market funds would create a capital reserve or an 'NAV buffer' by charging investors more over a period of time, said Norman Lind, head of trading for the taxable and municipal money market desks at Fidelity Management & Research Co., the investment advisor for Fidelity's family of mutual funds."

Federal Reserve Bank of Philadelphia President Charles Plosser "Offers His Design for an Exit Strategy" in a speech Friday. He says, "Our traditional instrument of monetary policy -- the federal funds rate -- has been near zero for more than two years and is controlled within a range but not precisely. The Fed's balance sheet is nearly three times as large as it was before the crisis, and it is heavily weighted toward long-term Treasuries and mortgage-related assets. Although recent global events have created some uncertainties, the apparent strengthening of the U.S. economy suggests it is prudent for policymakers to develop a strategy for the normalization of monetary policy. Today I want to suggest such a strategy.... If this forecast is broadly accurate, then monetary policy will have to reverse course in the not-too-distant future and begin to remove the massive amount of accommodation it has supplied to the economy. Failure to do so in a timely manner could have serious consequences for inflation and economic stability in the future.... The first element of the plan to exit and normalize policy would be to move away from the zero bound and stop the reinvesting program and allow securities to run off as they mature. Thus, we would raise the interest paid on reserves from 25 basis points to 50 basis points and seek to achieve a funds rate of 50 basis points rather than the current range of 0 to 25 basis points."

The FT writes "Amundi money market move bucks trend", which says, "Amundi is to launch a new range of money market funds at a time when a number of participants are thinking of exiting the sector. Managers say the combination of regulation, low interest rates and competition from banking products is having a damaging effect on the sector. Amundi, however, has created a range of products within a Luxembourg Sicav fund umbrella called the Amundi Money Market Fund. The first sub-fund to be launched will be Amundi Money Market Fund Short Term (EUR)." The piece adds, "The launch comes as money market funds are experiencing one of their most turbulent times. Last week, it was reported that HSBC Global Asset Management had considered leaving the sector altogether because of regulatory risks in the US. It came only a few months after Henderson Global Investors shifted most of its money market business to DB Advisors, Deutsche Bank's global institutional asset management business, citing regulatory pressure as the main reason." FT says, "HSBC says it has 'no plans to exit the money market industry', which represents around 20 per cent of its assets." They quote HSBC, "`[We were concerned] that regulatory changes may make money market funds uneconomic in the current market environment.... However, following [a] meeting with the US Securities and Exchange Commission, [chief executive John Flint] feels confident that the regulation is heading in the right direction."

ICI's latest weekly "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets decreased by $7.84 billion to $2.732 trillion for the week ended Wednesday, March 23, the Investment Company Institute reported today. Taxable government funds decreased by $8.54 billion, taxable non-government funds increased by $2.43 billion, and tax-exempt funds decreased by $1.72 billion." In other news, see the press release "EDGAR Online Introduces I-Metrix Money Market Holdings Dataset". It says, "EDGAR Online, a leading global provider of XBRL (eXtensible Business Reporting Language) software, services and data, today introduced its I-Metrix Money Market Holdings Dataset, which leverages the recent Securities and Exchange Commission requirement for monthly disclosure of money market portfolio holdings. EDGAR Online's customizable solution lets money market fund managers and risk management departments get to the data they need, allowing them to understand their risk profiles, benchmark against their competitors' risk profiles and quickly and efficiently position their funds in the market."

The Federal Reserve Bank of New York issued a "Statement Regarding Reverse Repurchase Agreements" yesterday, saying, "As noted in the October 19, 2009, Statement Regarding Reverse Repurchase Agreements, the Federal Reserve Bank of New York has been working internally and with market participants on operational aspects of triparty reverse repurchase agreements to ensure that this tool will be ready if the Federal Open Market Committee decides it should be used. Beginning tomorrow, the New York Fed intends to conduct another series of small-scale, real-value reverse repurchase transactions using all eligible collateral types. The first set of operations will be conducted using only the expanded repo counterparties announced on January 31, 2011. The second set of operations will be open to all eligible reverse repo counterparties. Like the earlier operational readiness exercises, this work is a matter of prudent advance planning by the Federal Reserve. The operations have been designed to have no material impact on the availability of reserves or on market rates. Specifically, the aggregate amount of outstanding transactions will be very small relative to the level of excess reserves, and the transactions will be conducted at current market rates. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future."

The results of these operations will be posted on the public website of the Federal Reserve Bank of New York, together with the results for other temporary open market operations. The outstanding amounts of reverse repos are reported as a factor absorbing reserves in Table 1 in the Federal Reserve's H.4.1 statistical release, and as liability items in Tables 8 and 9 of that release.

The Gov Monitor website writes, "Georgia Fund 1 Retains Standard And Poor’s AAA Rating". The piece says, "Governor Nathan Deal and Georgia Treasurer Tommy Hills have announced that the nationally recognized credit rating firm of Standard and Poor's affirmed its highest money market fund rating of AAA for Georgia's own Georgia Fund 1." Deal comments, "The success of Georgia Fund 1 is a reflection of our state's commitment to sound fiscal management, even during the worst of budget crunches." Treasurer Hills adds, "I am gratified that Standard and Poor's continues to assign its highest rating to Georgia Fund 1,. This is a clear signal to Georgians that their governmental funds are being invested in adherence with the highest standards of money management." The piece also says, "For the past 30 years the Office of the Georgia State Treasurer has managed and administered a local government investment pool (LGIP) called Georgia Fund 1. The LGIP is available for the short-term investment funds of Georgia's county and city governments and school boards, co-investing with the state treasury and Georgia's colleges and universities. Georgia Fund 1 operates like a traditional money market fund for governments providing all investors with safety, liquidity and competitive investment returns. Georgia Fund 1 is one of the largest LGIP's in the nation, and for the past 20 years its investment performance has outperformed the benchmark returns for all LGIP's. More than $8 1/2 billion is currently invested in Georgia Fund 1."

ICI writes "The Facts on Mutual Funds and Securities Lending" on its Viewpoints page. They say, "Recent stories in the press have addressed the issue of securities lending, particularly in the context of 401(k) plans. For example, a March 16 story in the Wall Street Journal ("Disclosure Sought on Fund Lending") suggests that securities lending' in 401(k) plans "prevented some employers and investors from withdrawing their money during the financial crisis." A few clarifications are in order. The Journal article correctly states that mutual funds, like many investment pools, lend securities (typically to broker-dealers). Doing so allows mutual funds to generate incremental income and improve total returns with a reasonable amount of additional risk. Securities lending also provides liquidity to the market by enabling brokers to cover failed trades or short positions. But when the Journal's story refers to plan sponsors being restricted from withdrawing from an investment option that participated in securities lending, it is not referring to mutual funds, but rather to non-registered investment pools offered to retirement plans."

Website IndexUniverse.com writes "Is MINT Growing Up?", which asks, "Who guessed PIMCO's 'MINT' would gather $1 billion in just over a year? Not me." It says, "It's true, the `PIMCO Enhanced Short Maturity Strategy Fund crossed the $1 billion threshold for the first time this week.... Traders in the ETF space who are enthusiastic that the ETF universe now has a real active, money-market type instrument talk about trusting the Pimco brand.... [I]t's high time for an ETF solution to an age-old need to park assets in a safe place for a reasonable return.... And the data on returns back up the idea that perhaps MINT is actually a better mousetrap than a money market fund or your margin account's cash sweep. For the 35 basis points investors pay PIMCO for MINT, they got an SEC yield of 0.83 percent as of yesterday.... The Vanguard Prime Money Market Fund (VMMXX), to take one example, may cost just 23 basis points, but had an SEC yield of 0.08 percent. At least you're not underwater with MINT, which achieves that advantage with an effective maturity of almost a year, versus an average maturity of 57 days for the Vanguard fund's holdings. Lest I get ahead of myself, VMMXX had $109.2 billion in assets at the end of February.... MINT had $1.18 billion as of yesterday's close."

ICI's latest weekly "Money Market Mutual Fund Assets report says, "Total money market mutual fund assets decreased by $10.54 billion to $2.739 trillion for the week ended Wednesday, March 16, the Investment Company Institute reported today. Taxable government funds increased by $3.83 billion, taxable non-government funds decreased by $14.44 billion, and tax-exempt funds increased by $70 million." The release says, "Assets of retail money market funds increased by $3.62 billion to $933.05 billion. Taxable government money market fund assets in the retail category increased by $1.08 billion to $175.74 billion, taxable non-government money market fund assets increased by $2.46 billion to $552.54 billion, and tax-exempt fund assets increased by $80 million to $204.77 billion.... Assets of institutional money market funds decreased by $14.17 billion to $1.806 trillion. Among institutional funds, taxable government money market fund assets increased by $2.75 billion to $625.33 billion, taxable non-government money market fund assets decreased by $16.90 billion to $1.062 trillion, and tax-exempt fund assets decreased by $10 million to $118.42 billion."

The FDIC will host a roundtable on Friday morning to discuss Brokered Deposits It posted a statement entitled, "Core and Brokered Deposit Study as Mandated by Section 1506 of the Dodd Frank Wall Street Reform and Consumer Protection Act", which says, "Section 1506 of the Dodd-Frank Wall Street and Reform Consumer Protection Act requires that the FDIC conduct a study to evaluate: The definition of core deposits for the purpose of calculating insurance premiums; The potential impact on the Deposit Insurance Fund of revising the definitions of brokered deposits and core deposits to better distinguish between them; Differences between core deposits and brokered deposits and their role in the economy and U.S. banking sector; The potential stimulative effect on local economies of redefining core deposits; and, The competitive parity between large institutions and community banks resulting from redefining core deposits and brokered deposits.... The banking industry has seen significant technological advances and other innovations in the deposit gathering process since the brokered deposit regulation was implemented. This study provides us with a unique opportunity to look at the current range of deposit types and the brokered deposit regulation and other regulations and supervisory rules to determine whether these rules and regulations are still relevant in light of these innovations. To that end, the FDIC would appreciate input on how industry changes have affected deposit stability and franchise value and whether these innovations warrant changes to statutory or regulatory treatment of deposits."

The Federal Reserve Board met yesterday and issued this statement, "Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation.... To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November.... The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate."

The annual Mutual Funds and Investment Management Conference, which will take place March 27-30, 2011, in Palm Desert, CA, will feature a panel on money market mutual funds this year. The conference description says, "ICI and FBA Examine Current Issues Impacting Investment Companies. As the financial services sector undergoes radical reform, it is critical for those in the mutual fund industry to keep abreast of the latest legislative, regulatory, and business developments affecting funds and their shareholders. Don't miss the 2011 Mutual Funds and Investment Management Conference, sponsored by the Investment Company Institute and the Federal Bar Association. The conference will be held March 27–30, 2011, at the JW Marriott Desert Springs Resort and Spa in Palm Desert, California." The panel on "Short Term Markets and Money Market Funds" will take place on Monday, March 28, and will discuss "Current regulatory agenda at the SEC and beyond, Tri-party repo task force update, and Implementation of new 2a-7 rules." It will be moderated by ICI's Chief Economist Brian Reid and will include John Hammalian, Managing Counsel and Managing Director, The Dreyfus Corporation, Stephen Keen, Counsel, Reed Smith LLP, Norman Lind, Head Trader - Money Markets, Fidelity Management and Research Company, and Robert Plaze, Associate Director, Division of Investment Management, U.S. Securities and Exchange Commission (via teleconference).

A CNBC Guest Blog features "Crescenzi: Money Market Update - Punishing Trend". PIMCO Strategies Tony Crescenzi writes, "Money market rates continued to decline to punishingly low levels in the latest week, pressured downward by a further increase in the monetary base, which is resulting from the Federal Reserve's asset-purchase program. Banks, which hold about 20% of their assets in fixed-income securities, have since the Fed's program began throttled back their steady accumulation of fixed-income securities, if only because the Fed is forcing their hand. The liquefying of bank balance sheets is just one symptom of a systemic condition whereby financial liquidity is superfluous in magnitude substantial enough to encourage investors to do what the Fed ultimately intends them to do, which is to move out the concentric circle -- to rebalance their portfolios and take added risk, buoying riskier assets. Combined with a continuing contraction in the supply of investable money market assets, the result is as it has been, which is an ever-lower level of money market rates. The nearing of quarter-end is adding to the downward pressure on rates. No meaningful relief on the downward pressure on money market rates is expected until Washington approves an increase in the debt ceiling significant enough to restore the supplemental financing program and hence increase the supply of T-bills."

U.S. Securities and Exchange Commission Chairman Mary Schapiro gave testimony before a subcommittee of the U.S. Senate yesterday, and briefly mentioned money funds. She said, "The Commission took action to permit investors, for the first time, to access detailed information that money market funds now file with the agency, including their 'shadow NAV' (net asset value). While the SEC uses this information in its real-time oversight of money market funds, public disclosure can provide investors and market analysts with useful insight for their evaluation of funds. We also tightened the quality standards that apply to the funds' investments and are working with our regulatory colleagues to assess the various options for making sure these funds are as safe and resilient in the face of market stresses as investors are led to believe." New Director of the SEC's Division of Investment Management Eileen Rominger added, "Important reforms the Commission adopted in the regulation of money market funds became effective in FY2010 and FY 2011. Included in these amendments was a requirement for money market funds to report their portfolio holdings to the Commission on a monthly basis. The Commission thus has begun more extensive oversight and surveillance of money market funds based on this data. In the coming year, IM plans to continue and expand initiatives to improve its monitoring of money market funds and ability to analyze trends in money market funds' portfolio exposures, liquidity levels and average maturities. Also, IM is considering recommending additional reforms aimed at further improving the regulatory regime for money market funds and lessening their susceptibility to runs. Last year, the President's Working Group on Financial Markets (of which the SEC Chairman was a member) published a report examining various options for additional money market fund reforms. The Division's staff contributed substantial assistance and resources to this effort and continues to consult with their counterparts in the other agencies that comprise the Financial Stability Oversight Counsel (FSOC). The Commission requested comment on the options discussed in this report and will consider the comments received in evaluating additional regulatory reform." See also, ICI's "Money Market Mutual Fund Assets."

Federated Investors, Inc.'s President and CEO J. Christopher Donahue to Present at Citi Financial Services Conference said the company. A release says, "Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, announced today that President and CEO J. Christopher Donahue is scheduled to present the company's strategy for growth at the Citi 2011 Financial Services Conference at 2 p.m. Eastern on Thursday, March 10, 2011. Investors and other interested parties can listen to a live webcast of the presentation via FederatedInvestors.com. To listen to the live presentation, go to the About Us section of FederatedInvestors.com at least 15 minutes prior to register, download and install any necessary audio software. A replay will be available on this site for seven days."

Dechert Attorneys David Geffen and Joseph Fleming recently published, "The Systemic Risk of Money Market Funds: Another Approach". It says, "Various federal regulators, including the Securities and Exchange Commission (SEC), appear ready to regulate money market funds further because these funds' susceptibility to runs, analogous to bank runs, is deemed to pose a systemic risk. This article describes why money market funds are perceived as posing a systemic risk and offers an alternative to mitigate this risk that differs from those proposed by the SEC and the President's Working Group on Financial Markets.... An alternative interpretation is offered here. Rather than attributing the systemic risk engendered by money market funds susceptibility to runs to the structure of money market funds, the systemic risk could be deemed to arise from institutional shareholders, which can demand liquidity when money market instruments in which money market funds invest are experiencing a period of exceptional illiquidity.... The alternative suggested here is that, during a period of illiquidity, as declared by a money market fund's board (or, alternatively, the SEC or another designated federal regulator), a money market fund may impose a redemption fee on a large share redemption approximately equal to the cost imposed by the redeeming shareholder and other redeeming shareholders on the money market fund's remaining shareholders."

Fitch Ratings writes "Fitch Rates Three Existing Money Market Funds Managed by State Street Global Advisors 'AAAmmf'". It says, "Fitch Ratings has assigned the following offshore money market funds managed by State Street Global Advisors (SSgA) 'AAAmmf' ratings: State Street Global Advisors Liquidity PLC - SSgA EUR Liquidity Fund, State Street Global Advisors Liquidity PLC - SSgA GBP Liquidity Fund, and State Street Global Advisors Liquidity PLC - SSgA USD Liquidity Fund. The ratings reflects the funds' extremely strong capacity to achieve their investment objectives of preserving principal and providing shareholder liquidity through limiting credit, market and liquidity risk. The main drivers for assigning the 'AAAmmf' ratings to these funds are the credit quality, diversification, and liquidity of each fund's portfolio of assets and the capabilities and resources of SSgA as investment advisor. As of 16 February 2011, the funds had EUR2.3bn, GBP2.2bn and USD21.1bn assets under management, respectively." Fitch also published, "Fitch Assigns SSgA USD Government Liquidity Fund 'AAAmmf' Rating," which says, "Fitch Ratings has assigned the newly launched State Street Global Advisors Liquidity PLC - SSgA USD Government Liquidity Fund managed by State Street Global Advisors (SSgA) a 'AAAmmf' rating."

Investment News write "Fed interest rate policy hurts retirees". The opinion piece, written by Putnam Investments' Lenny Glynn, says, "Two years after the near-meltdown of the global credit system -- and even while our economic recovery gains momentum -- the Federal Reserve still feels compelled to keep its interest rates at virtually zero. However strong the arguments for continuing low rates until the recovery becomes fully self-sustaining, there is no doubt that this policy has unfairly inflicted real harm on prudent retirees, who depend on interest earnings to meet their life expenses. This is wrong.... Let's stop hurting people who have saved for decades and invested cautiously -- those who played by the rules, helped finance our country's growth and followed mainstream financial advice. Granting seniors some relief on interest income is way overdue. Should the Fed stay on a low-interest-rate course, Congress can act to remedy this injustice. It is only fair." See also, The Wall Street Journal's "Where to Put Your Cash Now", which says, "Interest rates are so low these days that the most cautious savers are getting practically nothing in return. Yet the financial crisis showed major risks lurking within supposedly "safe" investments like money-market mutual funds."

ICI's latest "Money Market Mutual Fund Assets" report says, "Total money market mutual fund assets increased by $560 million to $2.751 trillion for the week ended Wednesday, March 2, the Investment Company Institute reported today. Taxable government funds decreased by $1.11 billion, taxable non-government funds increased by $1.03 billion, and tax-exempt funds increased by $640 million." Year-to-date, money fund assets have decreased by $59 billion, or 2.1%. In other news, a release entitled, "FDIC to Hold Roundtable on Brokered Deposits," says, "As part of the implementation of the Dodd Frank Wall Street Reform and Consumer Protection Act, the Federal Deposit Insurance Corporation will host the fifth in a series of roundtable discussions with key stakeholders. The discussion will focus on a study of core and brokered deposits, as required under the Act, and will take place Friday, March 18, 2011 from 10 a.m. to noon. Government officials, industry executives and other stakeholders will discuss the current brokered deposit restrictions contained in the Federal Deposit Insurance Act and related regulations as well as more recent innovations in the methods institutions use to gather deposits. Dialogue will focus on the relative volatility or stability of certain deposits as well as their franchise value and how these features are affected by the underlying characteristics of a deposit, such as interest rate and relationship with the depositor."

The Washington Post writes "SEC grapples with task of purging credit ratings from rules for money-market funds". It says, "Now, as regulators struggle to rewrite the rules, they are confronting a deeper question: What should replace credit ratings? The Securities and Exchange Commission grappled with the issue Wednesday as it turned to the task of purging credit ratings from the rules for money-market funds." Bloomberg writes "SEC Weighs Replacing Credit Ratings in Money-Market Fund Rules", which says, "The U.S. Securities and Exchange Commission may propose dropping credit-rating references from money-market fund regulations and using a different method for evaluating their portfolios. SEC commissioners may seek comment on a proposed rule to instead use internal assessments for money market funds, according to a fact sheet released by the agency. The funds themselves would be responsible for weighing the credit quality of the securities in the proposal, which would be open for public comment until April 25."

Federated's "Month in Cash" is entitled, "With inflation on the radar screen, could rate hikes be next?" It says, "In an apt reflection of the fearsome winter weather that gripped much of the country in February, short-term interest rates remained virtually frozen in place despite a news-heavy calendar that suggested changes in the cash-yield curve might not be far off.... Still, the cash-yield curve barely budged in February, with the one-month London interbank offered rate (Libor) closing at 0.26%, three-month Libor at 0.31%, six-month Libor at 0.46% and one-year Libor at 0.79% Only six-month rates showed any overall movement, rising by a scant basis point. However, the yield on two-year Treasury notes did jump by 15 basis points to 0.73% as investors recalibrated their expectations for the initial round of Fed tightening.... We continue to believe that the initial interest rate hike will occur somewhat sooner than the consensus believes and that inflation will be the ultimate trigger for the Fed's action." In other Federated news, the $11 million Federated Maryland Muni Cash Tr (MDMXX) was liquidated on Feb. 25. (See the filing here.)

William Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, spoke yesterday at New York University's Stern School of Business on "Prospects for the Economy and Monetary Policy." Dudley says, "In my talk, I'll argue that the economic outlook has improved considerably. Despite this, we are still very far away from achieving our dual mandate of maximum sustainable employment and price stability. Faster progress toward these objectives would be very welcome and need not require an early change in the stance of monetary policy. However, I'll also focus on some issues with respect to inflation that will merit careful monitoring. In particular, we need to keep a close watch on how households and businesses respond to commodity price pressures. The key issue here is whether the rise in commodity prices will unduly push up inflation expectations.... However, let me make two points. First, I am very confident that the enlarged Federal Reserve balance sheet will not compromise our ability to tighten monetary policy when needed consistent with our dual mandate goals. Second, I am equally confident that no one on the FOMC is willing to countenance a sustained rise in either inflation expectations or inflation."