william c dudley : remarks at the 2015 us monetary policy forum remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the 2015 us monetary policy forum, new york city, 27 february 2015. * * * jonathan mccarthy, paolo pesenti and joseph tracy assisted in preparing these remarks. it is a great pleasure to have the opportunity to comment on this year ’ s monetary policy forum paper, “ the equilibrium real federal funds rate, past, present and future. ” let me preface my remarks with the reminder that what i have to say today reflects my own views and not necessarily those of the federal open market committee ( fomc ) or the federal reserve system. i think this is a timely topic because it is relevant to several questions that are particularly important in the current environment. first, if one were to use a taylor - type rule as a guide to assess the stance of monetary policy, what equilibrium real federal funds rate would one currently use in the formula? given the performance of the economy in recent years, i think it would be very hard to justify the typical assumption of a 2 percent rate. second, what will this equilibrium real rate be in the future? this is particularly germane right now given that short - term forward interest rates derived from the treasury yield curve have come down sharply since late 2013. for example, the 1 - year forward rate, 9 years ahead has declined sharply over the past year, falling from around 5 percent in december 2013 to just under 3 percent currently. what can explain such a large shift in forward rates at such a long time horizon? third, when u. s. monetary policy is normalized, how fast should we raise short - term interest rates? in other words, what is the appropriate path back to the long - run equilibrium real federal funds rate, shallow or steep? in my view, the paper reaches five major conclusions – conclusions that i find myself broadly in agreement with : • there are many factors that influence the level of the equilibrium real short - term interest rate. real potential gdp growth may be one factor, but the real equilibrium rate is also affected by financial conditions, uncertainty and risk aversion, financial market performance ( e. g., bubbles and busts ) and the degree of restraint exerted by the stringency of banking and financial market regulation. • there is little evidence supporting the so - called “ secular stagnation ” view that the equilibrium real short - term

system contributed to the decrease in the bank's negative balance. the negative target balance continued to edge down in the first months of 2024, to around €500 billion on average in march. main drivers of the 2023 net profit and future prospects the eurosystem's monetary policy is designed and implemented to fulfil the statutory mandate of price stability, even if this leads to a temporary worsening in central banks'profit and loss accounts. last year, we anticipated that the bank of italy would post a sizeable gross loss for 2023, before the release of the general risk provision, largely due to the sharp contraction in net interest income. this has also occurred at the other eurosystem central banks, some of which recorded a gross loss as early as 2022. the rise in the ecb policy rates led to an increase in the cost of balance sheet liabilities, mainly bank deposits, with no corresponding increase in the yield on monetary policy assets. these assets are actually less sensitive to changes in interest rates, as they consist mainly of fixed - rate securities with medium to long - term maturities. 2 / 4 bis - central bankers'speeches confirming what had been anticipated last year, the financial result for 2023 before tax and before the release of the general risk provision was € - 7. 1 billion, against €5. 9 billion in 2022. in addition to the €11. 4 billion deterioration in net interest income, the reduction in the financial result was explained by the net result of pooling of monetary income, down by €3. 5 billion, which was also attributable to the impact of monetary tightening over the last two years. the bank of italy is able to absorb these losses thanks to its past capital strengthening policies, based on the principle of prudence. the financial buffers built up over the years to weather the potential materialization of risks are more than sufficient to cover both the loss for 2023 and that estimated for 2024. based on current monetary policy decisions and the expectations regarding interest rate developments, we expect 2025 to mark a return to profit. as a result, €5. 6 billion is released from the general risk provision in the 2023 annual accounts. along with the positive contribution of €2. 3 billion from the carryforward of the tax loss – which will enable us to pay lower taxes in the future – releasing this amount means that the bank can close the year with a net profit of €0.