john c williams : rising to the challenge - central banking, financial markets, and the pandemic remarks ( via videoconference ) by mr john c williams, president and chief executive officer of the federal reserve bank of new york, at the 16th meeting of the financial research advisory committee for the treasury ’ s office of financial research, 16 july 2020. * * * as prepared for delivery good morning. over the past four months we have experienced a series of unprecedented events. the pandemic, social distancing, and the economic fallout have transformed all of our lives. this summer, many americans will be grieving the loss of loved ones, and many more will be faced with financial hardship and concern about the uncertainty of the future. the pandemic has caused a deep recession and levels of unemployment we ’ ve not experienced in our lifetimes. at the federal reserve, we are working tirelessly to address the economic damage caused by the coronavirus and to put the economy back on a path toward achieving our dual mandate goals of maximum employment and price stability. in the first half of march, as the pandemic began to unfold in the u. s., the federal open market committee ( fomc ) lowered the federal funds rate effectively to zero. bringing the policy rate down to this low level reduced interest rates across the economy, making it easier for households and businesses to meet their borrowing needs and fostering favorable financial conditions. beyond these monetary policy actions, we have taken many additional measures to promote the stability of the financial system and to support the flow of credit. today, i ’ m going to focus my remarks on these measures and detail their significance for supporting the economy. but before i continue, let me give the usual disclaimer that the views i express are mine alone and do not necessarily reflect those of the federal open market committee or anyone else in the federal reserve system. a lesson from history ensuring liquid and smoothly functioning financial markets are essential roles of central banks, like the federal reserve. yet, it ’ s often poorly understood why these roles are so important for the health of the broader economy. it was the financial crisis that erupted in 1907 that led to the creation of the federal reserve system, and as we ’ ve planned and executed our response to the current crisis, it ’ s this history lesson i keep returning to. a number of shocks, beginning with the 1906 san francisco earthquake, led to a run on the banks in 1907. the run on

of gdp. as shown in ( figure 6 ), which shows these two components over time, the business balance is currently unusually high ; that is, businesses have very high cash flows relative to their investment outlays. this suggests that some of the required adjustment could occur by fostering greater investment spending as a share of gdp. for this to occur, it will be important that economic policies promote long - term growth and financial stability, and ensure that the united states is a competitive place to base production, with a well - functioning infrastructure, a skilled workforce and a reasonable tax and regulatory system. in addition, it seems desireable that some of the adjustment should take place in the trade sector. although a current account deficit of 3 percent of gdp by itself would be sustainable over time, for the household balance to remain close to current levels and the public balance to sharply narrow, then the current account may need to move further toward balance. for this to occur, there needs to be two offsetting adjustments. on one hand, the u. s. economy must be reoriented toward global demand and stronger net exports. on the other hand, there will have to be offsetting adjustments elsewhere in the world. after all, on a global basis, the current account balance – properly measured – must sum to zero. this means see " securing the recovery and building for the future. " remarks by william dudley at united states military academy at west point, new york, november 17, 2011, for a more detailed discussion of this issue. third quarter 2011, the latest period for which data are available. the federal public balance is roughly equivalent, though not identical, to the federal budget deficit ; the overall public balance numbers provided here include state and local government. bis central bankers ’ speeches that countries with significant trade surpluses will need to reorient their economies over time toward increasing domestic demand and running smaller trade surpluses. to sum up, the united states faces substantial fiscal challenges in the years ahead. and, in one important respect – net interest expense – these challenges may be more daunting than fully appreciated currently. in particular, the interest bill on the growing federal debt burden has been temporarily restrained by the low level of interest rates and high level of remittances from the federal reserve to the treasury. in addition, while significant fiscal adjustments must take place, it is important to recognize that such efforts will necessitate offsetting shifts in private domestic spending and production both here and abroad.