? as i see it, the contraction in gdp growth in the first quarter represents a mix of factors. these include another unseasonably cold and snowy winter, a sharp contraction in oil and gas investment, a deterioration in the trade balance due – in large part – to the stronger dollar and sluggish foreign demand, and a slowdown in consumer spending growth after a very strong fourth quarter. after adjusting for weather effects, i think seasonal adjustment issues probably also played some role. for example, real defense spending has declined eight times in the past nine years in the first quarter, suggesting there is a seasonal adjustment issue. but i judge that this has had only a modest effect on measured real gdp growth. because weather effects are by their nature temporary, the widely held expectation coming into the second quarter was that there would be a sharp rebound in growth similar to what took place last year. but current data suggests that the rebound has been relatively muted. i think this is because some of the non - weather factors evident in the first quarter – such as the drag from the sharp drop in oil and gas investment – have persisted into the second quarter. also, real disposable income growth has slowed over the past three months as aggregate hours worked have grown more slowly and crude oil and gasoline prices have partially recovered. this means that the fundamentals for consumer spending are not as strong as they were at the beginning of the year. nonetheless, my view is that growth will likely pick up further during the remainder of this year. this judgment reflects several factors. first, some of the forces that have been restraining growth are likely to fade later this year. for example, consider oil and gas investment. the u. s. oil and gas rig count dropped precipitously during the first quarter, but the rate of decline has slowed during the current quarter. combined with the partial recovery in crude oil prices, this implies that oil and gas investment is likely to stabilize during the second half of the year. second, business fixed investment outside of oil and gas seems likely to advance, reflecting strong fundamentals. for example, the cost of capital remains low and cash flows are high. third, there is plenty of room for further gains in residential investment. housing starts have been running at an annual pace of only about one million so far this year. this is low relative to both the rate of household formation that one would expect given underlying demographics and the rate of job formation. moreover, continued improvement in mortgage jonathan

activity is now quite distant from zero, in comparison to the period before liftoff. ( figure 3 ) shows a similar presentation for the triparty repo market, similarly revealing that traded rates are now consistently well above the zero bound and largely above or at the on rrp offer rate. certain features of the financial system likely provide support to interest rates near zero. these include the availability of physical cash and a behavioral aversion by some money market investors to investing at negative rates. they also encompass certain unique features of money markets in the united states, such as legal and regulatory incentives applicable to money market funds and the inability of the federal reserve to remunerate deposits held by governmentsponsored enterprises. accordingly, when we were at the zero lower bound, we weren ’ t able to rule out the possibility that initial increases in the policy target might not translate one - for - one into increases in money market rates, as reduced uplift from the zero lower bound could have offset some of the policy tightening. in addition, one might have also worried that various money markets might not move together as rates rise, meaning that, for example, a larger spread might emerge between secured and unsecured rates, or between overnight and term instruments, than had historically been the case. i will discuss some evidence on these issues later on. the second development, in october 2016, was the entry into force of new sec rules for money market funds. these new rules require, among other things, a floating net asset value for institutional prime money market funds, provide for liquidity fees and redemption gates for prime funds, and establish more stringent rules for portfolio diversification and financial reporting for all money market funds. 11 many of these reforms are aimed at least in part at enhancing financial stability, and in particular at addressing the potential for runs on prime funds to intensify financial stress. they could also make prime funds, which can hold a broad spectrum of money market 3 / 13 bis central bankers'speeches assets, less attractive to investors who desire an investment opportunity with a fixed net asset value or who are concerned about redemption fees or gates. our contacts in the money market fund industry could foresee, based on their own business plans and discussions with their clients, that these reforms would lead to a substantial shift in money market fund assets. substantial amounts were expected to come out of prime funds and into government - only funds, which generally hold treasury securities, repo against treasury collateral, or similar ultra - low