federal funds rate. such a development is equivalent to a fall in the neutral rate. but policymakers should recognize that financial market turmoil is not a garden - variety shock to output. it is different than, say, a demand shock caused by a change in exports. financial market turmoil can lower output growth and limit the efficacy of the transmission mechanism concurrently. the federal funds rate, i maintain, will generally need to be lowered, and by more than in normal circumstances, to achieve an operative monetary policy rate that helps to restore the economy expeditiously to equilibrium. but policymakers need to think carefully about two issues : the degree of reduction in the federal funds rate and the pace at which the rate returns to normal. the prudence of these moves in the funds rate may ultimately depend on one's diagnosis of what ails the real economy, the risk to that diagnosis, expected benefits of changes in wealth and the cost of capital to businesses and households, and the effect of a lower federal funds rate on the sum of credit availability to the real economy. of no less importance, it may depend on policymakers'judgment on tradeoffs with other critical policy objectives. more on that to come. the differing nature of these infrequent episodes of financial turmoil makes it difficult to place great confidence in available econometric evidence. almost by definition, there are few historical precedents that might usefully guide forecasts of aggregate demand and supply. my favorite saw of this period has it about right : if you have seen one financial crisis, you have seen one financial crisis. so, by necessity, policymakers must make judgments about how the crisis will unfold. economics, and the conduct of monetary policy, after all, is not physics. 10 at least it isn't yet. still, a strong case for a forward - looking approach to monetary policy in these episodes seems compelling. waiting for the effects of the turmoil to reveal themselves in spending and production data before policy action, as in an unadjusted taylor rule approach, could risk prolonged weakness. on monetary policy … in times of inflation risks up to this point, i focused almost exclusively on the conduct of monetary policy in a noninflationary environment. but we cannot assume inflation concerns away. determining appropriate policy necessarily involves more than figuring out the neutral real federal funds rate. this reality is especially obvious at present. inflation has been elevated for some time and prices of commodities are surging. i find these trends particularly ve

bank failures and the events and circumstances surrounding them warrant review, self - reflection, and where necessary, appropriately targeted changes to identified gaps in regulation and supervision. we should carefully examine what is working and what can be improved in bank supervision. in doing so, we must appropriately and effectively manage our supervisory programs, teams, and expectations to ensure that efficient, effective, and consistent supervision is implemented across our regulated entities according to a bank's complexity, size, risk profile, and scope of activities. conducting supervision in a manner that respects due process and provides transparency around supervisory expectations goes a long way in accomplishing these goals. 2 / 3 bis - central bankers'speeches we should acknowledge that changes to supervisory expectations and processes, coupled with the sheer volume of recent regulatory and supervisory reforms and proposed reforms, will undoubtedly present additional challenges and risks for banks. while some changes to the supervisory process and priorities may be appropriate to promote a safe and sound financial system and enhance financial stability, having an appropriate focus on the most salient risks is important for effective risk management and effective supervision. we should be cautious that these changes do not distract banks or supervisors from focusing on core and emerging risks or impair the long - term viability of the banking system - especially for mid - sized and smaller banks. in closing, i hope that today's conference provides an opportunity for open and frank conversations about prudent risk management and how we can work together to maintain a safe and sound financial system. thank you for taking the time to be with us today. i hope you enjoy the conference, and i look forward to spending more time discussing these issues with you in the future. 1 board of governors of the federal reserve system, federal deposit insurance corporation, national credit union administration, and office of the comptroller of the currency, " agencies update guidance on liquidity risks and contingency planning, " news release, july 28, 2023. 3 / 3 bis - central bankers'speeches