John C Williams: A new chapter for the FOMC monetary policy framework Remarks (via videoconference) by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the “In Conversation: New York Fed Presidents on COVID-19” Bretton Woods Committee Webinar, 2 September 2020. * * * Thank you, Bill. It’s great to be with you today, at least virtually, and I am looking forward to our discussion. But before we dive in, I thought I would offer some thoughts on the announcement made last week about the completion of the Federal Open Market Committee’s review of its monetary policy framework and the issuance of a new Statement on Longer-Run Goals and Monetary Policy Strategy.1 Before I continue—and you know what comes next, Bill—let me give the usual disclaimer that the views I express are mine alone and do not necessarily reflect those of the Federal Open Market Committee or anyone else in the Federal Reserve System. Allow me to add one last “before” caveat. Before I explain the new statement, it is important to reflect on the context in which the original statement was issued. Then I’ll share how the monetary policy framework of today positions us best to achieve our goals and manage the very challenging environment that lies ahead. The original consensus statement was issued back in January 2012 and represented an important step in the Committee’s progress toward greater transparency around its goals and strategy.

Accommodative macroeconomic policies were generally supported by policies and reforms to strengthen the financial system, to ensure that domestic demand was supported by the financial sector. With rising incomes, private consumption and investment activities have expanded significantly to become the major engine of growth in Asia. Cumulatively, the increase in domestic demand in the region has transformed Asia into becoming a huge consumer market. This has also prompted greater inter-regional trade which has become mutually reinforcing on growth in the region. From being export-led, domestic demand has now become an important source of growth. Asia is, therefore, now shifting from being global producers to becoming global consumers. The wide-ranging financial reforms in several emerging economies in Asia, have resulted in financial intermediaries with strong capital and liquidity buffers, and improved risk management and governance practices. This has allowed for the financial intermediation process to continue without disruption during the recent global financial crisis. The more comprehensive regulatory frameworks have also been complemented by enhanced  BIS central bankers’ speeches  3  surveillance arrangements and a relatively more intrusive supervisory oversight. Wideranging policy tools, including macro-prudential policies, have been relied upon to mitigate and manage the risks emanating from excesses and the build-up of imbalances in the financial system. The opportunity was also taken by most central banks in the region to normalise interest rates once recovery had commenced. Interest rates, while still remaining accommodative, were raised from their historical lows. Finally, with more developed financial markets, shocks were now more dispersed throughout the financial system.