for release on delivery 11 : 15 a. m. est ( 10 : 15 a. m. cst ) january 7, 2017 low interest rates and the financial system remarks by jerome h. powell member board of governors of the federal reserve system at the 77th annual meeting of the american finance association chicago, illinois january 7, 2017 thank you for this invitation to discuss low interest rates and the financial system. the framing of this topic raises the question of whether low interest rates have somehow undermined the stability and functioning of the financial system. i will argue that “ low for long ” interest rates have supported slow but steady progress to full employment and stable prices, which has in turn supported financial stability. indeed, by many measures the u. s. financial system is much stronger than before the crisis. that said, there are difficult tradeoffs to manage. over time, low rates can put pressure on the business models of financial institutions. and low rates can lead to excessive leverage and broadly unsustainable asset prices - - things that we watch carefully for and do not observe at this point. i will begin by focusing briefly on the macroeconomic effects of low interest rates. i will then turn to the condition of the financial system - - in particular, its interplay with low rates. as always, the views i express here today are mine alone. highly accommodative monetary policy the financial crisis and the great recession posed the most significant macroeconomic challenges for the united states in a half - century, leaving behind high unemployment and below - target inflation and calling for highly accommodative monetary policies. isolating the effects of these policies is challenging, but studies generally show that they lowered rates across the curve and moved other asset prices as well. 1 it is even more challenging to evaluate their effects on aggregate demand. low rates and higher asset prices should support household and business spending and williams ( 2014 ) compiles the results from a range of studies estimating the effect of the federal reserve ’ s large - scale asset purchases ( lsaps ). while the exact numbers vary and are subject to substantial uncertainty, typical estimates of the effect of a representative $ 600 billion in treasury lsaps on long - term yields are in the range of 15 to 25 basis points, an effect roughly equivalent to that of three or four rate cuts of 25 basis points. - 2investment through various channels. but low rates may also perversely induce some households to save more in

the health and conduct of the sector. the reserve bank ’ s insurance agenda for the coming year ( or years ) is thus very full. we are committed to openly communicating our development priorities to insurers and the wider public, so that individuals and firms have the opportunity and ability to be an active participant in the policy development. https : / / www. rbnz. govt. nz / news / 2019 / 01 / fma - and - rbnz - report - on - life - insurer - conduct - and - culture ref # 8609867 v1. 2 page 7 of 7 what we ask of you, is that you engage openly and early with us, and that you heed the lessons of the banking and life insurer conduct and culture reviews. we look forward to working with the industry and other interested parties as we embark upon this next phase of our insurance supervision development. thank you for your time today, and in the near - future. ref # 8609867 v1. 2