samchain/econo-pairs-v1 huggingface dataset:
William C Dudley: The US economic outlook and the implications for monetary policy Speech by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Bank Indonesia – Federal Reserve Bank of New York Joint International Seminar, Bali, 31 July 2016. *  *  *  It is a pleasure to have the opportunity to speak here in Bali. Today I plan to provide a brief summary of the U.S. economic outlook, incorporating recent U.S. economic data and global and financial market developments. I will then discuss the implications of the outlook for U.S. monetary policy, and explain how international and financial market developments influence my thinking. I will emphasize two key points. First, financial market conditions matter in determining the appropriate stance of monetary policy. Financial conditions affect households’ and firms’ decisions, so that the transmission of U.S. monetary policy to the real economy depends, to a large extent, on how changes in monetary policy help deliver the appropriate financial market conditions to support our objectives of price stability and maximum employment. But financial conditions also evolve in response to domestic and international events. Thus, when I reiterate that U.S. monetary policy is data dependent, that includes not just the information gleaned from important economic releases such as payroll employment and retail sales, but also how financial market conditions react to economic and financial market developments in the global economy.

If economic circumstances change, then monetary policy needs to change too. Otherwise, we will not be able to achieve our objectives. Thank you for your kind attention. I would be happy to take a few questions. BIS central bankers’ speeches  7
The financial system is also clearly much stronger, with the banking system much better capitalized and with much larger liquidity buffers than in the years preceding the financial crisis. In today’s briefing, we will be focusing on the household sector. Given the importance of consumption to U.S. economic growth, the health of the household sector is critical for an assessment of risks to the outlook. Over the last several years we have devoted significant resources to better understanding the state of the household sector, and one outcome of this attention is our now well-known Quarterly Report on Household Debt and Credit. This report, and the data that underlie it, give us direct insight into the health of the household balance  1  See William C. Dudley, The U.S. Economic Outlook and Implications for Monetary Policy, Remarks at the Economic Leadership Forum, Somerset, New Jersey. BIS central bankers’ speeches  1  sheet. The assets and liabilities that families hold is a crucial determinant of the household sector’s ability to help immunize the economy from shocks. We learned during the Great Recession the importance of household liabilities – in particular, mortgages, which make up more than two-thirds of the sector’s total liabilities. As you know, the early part of the 2000s witnessed a very substantial expansion in borrowing by households. This borrowing took many forms, but was particularly notable in mortgages and home equity lines of credit, and reflected the very high and unsustainable expectations of house price appreciation.

William C Dudley: Remarks at the New York Fed’s Economic Press Briefing on the Household Debt and Credit Report Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the New York Fed’s Economic Press Briefing on the Household Debt and Credit Report, New York City, 12 February 2016. *  *  *  Domenico Giannone, Andrew Haughwout, Joseph Tracy and Wilbert van der Klaauw assisted in preparing these remarks. Good morning and welcome to the Federal Reserve Bank of New York’s Economic Press Briefing. I am pleased to have this opportunity to speak with you today about the economic outlook, with a focus on the household sector. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. According to the National Bureau of Economic Research, the current expansion began in July 2009, making it nearly seven years old. If we gathered this expansion and the 11 prior post-WWII expansions together for a family photograph, arranging them by age from youngest in front to oldest in back, this expansion would be standing third from the rear. The only two that lasted longer were the expansion that began in February of 1961, which lasted for nearly nine years, and the one that began in March of 1991, which lasted for ten years. Thus, the current expansion is already an elder statesman in the family of post-war U.S. expansions.
While it would be exaggerated to talk at the moment about deflation, the fact that monetary easing has had such a limited impact on prices is somewhat surprising. 5/ – The fifth and final paradox: long-term interest rates have never been so low. In real terms, they are close to or below zero. But in all countries, rates of investment as a proportion of GDP are still between 2 and 4 points below pre-crisis levels. It is only right that these paradoxes should have caught the attention of analysts and prompted concern among policy-makers. And it is understandable that questions have been raised over the efficiency of our financial system and the usefulness of certain financial activities. However, in complex situations such as these, simple, knee-jerk responses are rarely the right ones. I shall address this in my second point. II/ – There is a very strong temptation at the moment to opt for obvious, attractive solutions, which can unfortunately prove dangerous. I would just like to give you some examples of the assertions that we frequently hear, but which do not fully reflect the reality of the situation and, in some cases, are quite frankly wrong: 1st assertion: monetary policy isn’t working. According to this theory, non-standard monetary policies have had a very limited impact and generate too much risk for the financial system. In other words: highly accommodative monetary policies foster speculation rather than kick-starting the economy. To which we can answer: yes, non-standard policies do encourage greater risk-taking.

While these differences are quite likely to generate different risks, the structure of the national financial system may also in itself contribute to either mitigating or further fuelling them. One size will not fit all – national flexibility is needed It is not very long since the CRR/CRD entered into force, but we have already enough practical experience to be thinking about developing it further. In my view, that should include simplifying it. We really had very limited experience of conducting macroprudential policy in practice at the time the CRR/CRD was drafted. In principle, the Commission’s starting point was to transform the Basel III minimum capital regulation into a maximum harmonization framework. And the somewhat cumbersome procedures when using some of the instruments under the CRR/CRD are probably the result of the pretty tough negotiations which took place before the current framework saw the light of day. Today, with some more experience and a fair amount of “learning by doing”, I think most would agree that national flexibility is necessary for efficient policy implementation. Furthermore, as I mentioned earlier, the circumstances under which macroprudential policy operates are not static. Therefore, in terms of the macroprudential framework it is unlikely that one size fits all, and fits at all times. Rather, the appropriate macroprudential policy set-up, naturally including the use  |7  of its instruments, will to some extent need to be tailored. The national flexibility, which is already part of the current CRR/CRD framework, is in my view key for efficient macroprudential policies.
The tours focused on the following topical areas: –  The role and functions of the BoZ;  –  The need to deal with licensed financial institutions;  –  Getting credit; and  –  The operations of a credit reference bureau. 47. The BoZ is planning to conduct the tours on a regular basis to address public misconceptions about the role of the BoZ in the financial sector. Future tours will also educate the public on how to detect genuine currency and how to invest in Government securities. The BoZ was requested to publish the names of licensed financial service providers in the print media on a more regular basis. Developments in banking, currency and payment systems 48. During the quarter under review, there was a continued improvement in the availability of electronic payment options. The number of Point of Sale (POS) terminals increased by 8.3% to 1,119 (third quarter 2010: 1,033). The volume of POS transactions also increased by 42.2% to 284,145 (third quarter 2010: 199,817). Similarly, the values of POS transactions increased by 32.6% to K113.9 billion (third quarter 2010: K85.9 billion). The  6  BIS central bankers’ speeches  Bank would like to urge members of the public to use Point of Sale terminals as they provide a more convenient, safer, efficient and cost effective way of making payments. 49. Further, the number of Automated Teller Machines (ATMs) increased by 4.5% to 489 ATMs (third quarter 2010: 468).

In formal terms, the General Council may only severe a member of the Executive Board from his or her appointment if “…he no longer meets the requirements which are made on him to be able to carry out his duties or if he has been guilty of serious misconduct.” 2 The legislation strengthens the Riksbank’s independence and credibility for monetary policy. For example, it should not be possible for those in power to be able to groundlessly dismiss a member of the Executive Board for the purpose of appointing their “own” decision-makers. As the question of accountability is stated in law, it is not actually the Riksbank’s task to take a stand on how this should be achieved. However, what we can do – and also strive for – is to create the best possible conditions for accountability. We do this by being as open and clear as we can. This makes it easier for outsiders to critically examine how monetary policy is conducted and how well we live up to our principles. 1  Sveriges Riksbank Act (1983:1385), Chapter 8, Article 1. 2  The Instrument of Government, Chapter 9, Article 13. 4  BIS Review 62/2007  There are also certain formal requirements for providing information to our principal. Our tasks include, for instance, presenting a written report on monetary policy to the Riksdag Committee on Finance at least twice a year. In connection with this, the Committee also holds a hearing with the Riksbank Governor.
Shaping the global governance structure At their summit in Pittsburgh last September, the G20 leaders “…designate[d] the G20 to be the premier forum for our international economic cooperation”. As an effective and powerful group, the G20 featured prominently in the broad international efforts to stabilise the global economy in late 2008 and early 2009. Without its prompt and comprehensive action, the consequences of the crisis would have been much worse. Among the G20 measures of 2009 were the efforts to strengthen confidence in international financial institutions, the IMF in particular, to permit it to play an effective role in tackling the crisis. Indeed, the G20 increasingly uses the IMF as an instrument of its policy implementation. 4  The membership of the G20 comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Korea, Japan, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union. The G20 was formed as a new forum for cooperation and consultation on matters pertaining to the international financial system. It studies, reviews, and promotes discussion among key industrial and emerging market countries of policy issues pertaining to the promotion of international financial stability, and seeks to address issues that go beyond the responsibilities of any one organization. 5  The International Monetary Fund (IMF) is an organisation of 186 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Why are interest rates low? Speech given by Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Authority Board  Manchester University Wednesday 16 November 2016  1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  I left this University almost exactly 40 years ago and, armed with a Masters in English Literature, ventured out into the wider world. There was no great expectation of making one’s fortune. It was a very different world. I had no interest whatsoever in economics. But even I knew the economy was in pretty bad shape, following the oil crisis, the three day week and the recessions of the previous two years. Even my younger, 1976, self, knew that inflation was running at 15%. To be honest that seemed pretty normal – it had been above 15% for three years. I didn’t realise then that I actually had inflation expectations but had someone asked I guess mine would have been pretty high. I am quite sure, however, that I didn’t know that Bank Rate was also 15%. Banks did not like giving students bank accounts in those days let alone loans. And most had grants anyway. But as with inflation, while I might have thought 15% Bank Rate a bit high, I would not have been all that surprised – Bank Rate had been around, if not above, 10% for most of the 1970s.
The resulting financial landscape would, however, look rather different. There would be greater specialisation and diversity. The shopping experience for a banking customer would be more farmers’ market than supermarket. •  Governance – stakeholders versus shareholders  In deciding appropriate corporate governance arrangements, economists have tended to focus on the relationship between shareholders (as principal) and managers (as agent). Principal-agent problems arise when these two parties’ incentives are misaligned. Profitrelated pay is one means of achieving alignment, with managers remunerated in line with shareholder returns. In addressing one incentive problem, however, this approach may risk worsening two others – between shareholders and depositors on the one hand and between shareholders and the public sector on the other. Limited liability means that returns to shareholders are capped below at zero, but not above. That provides a natural incentive for owners to gamble, pursuing high risk/high return strategies from which they import the return upside but export the risk downside to depositors or the public sector. During this crisis, the pursuit of those strategies has resulted in the public sector picking up the cheque for the downside in an effort to reduce risks to depositors. A mutual model of corporate governance gives rise to a rather different set of incentives. Instead of external shareholders, savers and borrowers become the owners, with profits remitted directly to them in the form of higher deposit rates and/or lower borrowing rates. For that reason, measured profit margins appear consistently lower for building societies than for banks.

In essence, events of the past two years can be retold as a story of the progressive breakdown in trust. The proximate cause of the crisis was a breakdown of trust between banks and households, specifically sub-prime mortgage-holders in the United States. The upshot was a loss of credit, and in many cases the homes, of these borrowers from 2006 onwards. Repossession rates on US mortgages have more than tripled in the past two years (Chart 1). UK arrears and default rates, although lower, are rising. Some borrowers are now rationed out of the mortgage market. In July 2007, there were around 9500 sub-prime mortgage products being advertised in the UK. Today, there are virtually none (Chart 2). As losses on these mortgages and other toxic assets accumulated, trust among banks was impaired. This saw a seizing-up of inter-bank money markets from the second half of 2007 onwards. Before the crisis, banks required about 10 basis points of compensation for making a three-month loan to one another (Chart 3). By September 2007, that compensation premium had risen tenfold to around 100 basis points. By September 2008, it had risen more than thirty-fold from pre-crisis levels. It has since fallen back to around 35 basis points. These persistent funding pressures have constrained banks’ ability to lend to the real economy. Damaged by losses on assets and constrained by funding costs, questions began to be raised during 2008 about banks’ future profitability and, in some cases, viability.
Third, the Single Resolution Authority should have an institutional set-up that allows for independence, sufficient operational capacity and a robust accountability framework with effective judicial protection against resolution decisions ex post. The Commission is currently assessing the options for the institutional anchoring of the Single Resolution Authority. I am looking forward to its proposal, which will need to ensure these three essential features. Thank you for your attention. I am now at your disposal for questions. 4  BIS central bankers’ speeches

4 For a full discussion of wage growth, see Cunliffe (2017) 3  7  All speeches are available online at www.bankofengland.co.uk/speeches  7  judging the appropriate balance to be struck when faced with a trade-off between returning inflation sustainably to target and supporting jobs and activity, one must pay close attention to any sign that above target inflation is feeding through to ‘second round’ effects in domestic costs. So far that doesn’t seem to be the case. In summary, it is difficult to determine precisely why the supply side of the economy has behaved as it has in the period since the referendum. The weakness in real wage growth, and the subdued nature of domestically generated inflation mean I am not yet ready to discount the idea that labour market flexibility is continuing to intensify. If true it would mean there is a little more room than headline measures of slack suggest for the economy to grow without generating above-target inflation in the medium term. For that reason, in our November meeting I was willing to wait for more evidence on the evolution of wage and domestic cost growth before beginning to withdraw some monetary stimulus. So I voted for no change in Bank Rate. Deliver Once the decision is made, attention turns to the final phase of ‘end to end’ monetary policy: Deliver. A key part of being Deputy Governor for Markets and Banking is responsibility for delivering much of the Bank’s monetary, and indeed financial stability, operations.
As monetary policy has an impact after a certain time lag, it is difficult to steer inflation in the short term. Monetary policy decisions are therefore based on an inflation forecast, usually looking one to two years ahead. This is the approximate time required for the effects of an adjustment in interest rates to pass through various channels of the economy and attain full impact on the rate of price increase. At the same time, we try to conduct our monetary policy in a way that will avoid excessive fluctuations in production and employment. This may give us reason to extend the forecast perspective a little beyond the two-year horizon. One could say that the Riksbank conducts a flexible inflation-targeting policy, a concept to which I will return later. Developments in household indebtedness and house prices Before I go into more detail on the significance of debts and wealth in monetary policy, I would first like to comment on developments in indebtedness and house prices in Sweden and compare them with developments in some other countries. BIS Review 51/2004  1  In recent years, household borrowing and property prices have increased rapidly in Sweden, as they have in many other countries. Debts have increased more than disposable incomes, and in Sweden the debt ratio, i.e. debts in relation to disposable incomes, is approaching the level seen during the crisis period in the early 1990s. House prices, when regarded across the country as a whole, have risen since the end of 1996.

The rate of increase has varied this year between 7 and 10 percentage points a year according to Statistics Sweden’s real estate price index. As I see it, there are several factors of a partly structural nature behind this development. One is the decline in interest rates, which is largely a result of the economic policy conducted. The fact that credit markets have been deregulated in recent decades and become more efficient has also created more beneficial conditions for household borrowing. These driving forces have been similar in many countries, although they have occurred at slightly different points in time. The fact that households have increased their indebtedness can to some extent also be due to the changeover in economic policy that took place in Sweden at the beginning of the 1990s, with a focus on price stability. Public finances were consolidated and an inflation target was introduced. Confidence in the low-inflation policy was established gradually and has brought greater stability to the economy, with lower inflation and interest rates. A more stable economy makes it easier to predict future developments in interest rates and inflation. This can in turn mean that the risks connected with slightly higher indebtedness are perceived as smaller. In recent years, household loans have largely been used to buy housing. The fact that the increase in lending to households has gone hand in hand with rising property prices is therefore no surprise.