christopher j waller : a case for cautious optimism speech by mr christopher j waller, member of the board of governors of the federal reserve system, at the c peter mccolough series on international economics, council on foreign relations, new york city, 20 january 2023. * * * thank you, ben, and thank you to the council on foreign relations ( cfr ) for inviting me to be part of this discussion. it has been close to a year since the federal open market committee ( fomc ) began tightening monetary policy. we began raising interest rates in march 2022 and shrinking our securities holdings in june in order to bring inflation down to our 2 percent target. 1 today i thought i would spend a few minutes taking stock of the year behind us and talking about what's next. a year ago, inflation was elevated and rapidly accelerating, and the fed moved to quickly and dramatically tighten monetary policy. at the end of december, the federal funds rate target was set in a range of 4. 25 percent to 4. 5 percent, the highest in 15 years. economic activity, meanwhile, has been holding up well. after shrinking slightly in the first half of 2022, real gross domestic product grew at an annual rate of 3. 2 percent in the third quarter, and monthly data suggest it grew around 2 percent in the fourth quarter. i expect such slowing to continue in this quarter, which is both expected and desirable in our ongoing fight to lower inflation. the fomc's goal in raising interest rates is to dampen demand and economic activity to support further reductions in inflation. and there is ample evidence that this is exactly what is going on in the business sector. on the manufacturing side, industrial production declined for the second month in december. and the institute for supply management's ( ism ) forward - looking indicators of orders and customers'inventory suggested that further weakening is in train. meanwhile, the ism survey for nonmanufacturing businesses, which had reported expansion since april of last year, indicated a slight contraction in december. this slowdown in services activity was widespread, affecting 11 of 17 sectors in the survey, with significant slowdowns in construction and real estate, two industries heavily affected by higher interest rates. this slowing in business activity is consistent with the fomc's goal of damping demand and reducing production so that it is in better alignment with the productive capacity of the economy. the goal is not, i would emphasize,

donald l kohn : restoring financial intermediation by banks – the role of regulators speech by mr donald l kohn, vice chairman of the board of governors of the us federal reserve system, at the office of thrift supervision national housing forum, washington dc, 8 december 2008. the original speech, which contains various links to the documents mentioned, can be found on the us federal reserve system ’ s website. * * * i thought i might use these brief introductory remarks to put some of our challenges as regulators in the broad context of the tremendous shifts in the pattern of financial flows that we are witnessing. traditionally, funds have been channeled from savers to borrowers in two ways : through financial markets and through financial intermediaries, such as banks and savings institutions. the turmoil in the u. s. financial system during the past 16 months has put both channels of financial intermediation under great strain and, in doing so, has produced a significant financial crisis. large losses taken by financial institutions and investors, mostly from mortgage - related assets, have increased uncertainty and undermined confidence ; these events have caused lenders to greatly tighten credit conditions for households and businesses, which, in turn, have contributed to a downturn in the economy that has reinforced the strains in the financial system. 1 one consequence of the distress in financial markets is that banks are being pushed to take a greater role in financial intermediation, which reverses, in part, a long - term trend away from bank - based financial intermediation and toward market - based intermediation. and, indeed, bank lending surged earlier in the fall following a lull over the summer. however, the degree to which the pickup represented deliberate choices by banks is unclear, as many households and businesses reportedly drew on previously committed lines of credit, and selling of loans in securitization markets was hampered by further deterioration in those markets. in recent weeks, bank lending appears to have dropped back, consistent with the significant tightening of terms and standards reported by bank loan officers in recent quarters as well as the weakening of economic activity. the need for greater bank intermediation has occurred at a time when banks are managing losses and are worried about meeting their funding needs. concerns about banks'creditworthiness have made it costly for them to issue long - term debt. growth in bank deposits has been fairly strong this year, and the recognition that deposits can be a reliable source of funds protected by the federal safety net has perhaps