john c williams : good day sunshine remarks ( via videoconference ) by mr john c williams, president and chief executive officer of the federal reserve bank of new york, at the midsize bank coalition of america, 21 june 2021. * * * hello, everyone. it ’ s a pleasure to speak with you today. the summer solstice was yesterday evening, making today one of the longest days of the year. but please rest assured that i won ’ t take advantage of that and go on for too long. that way, there will be plenty of time for me to answer your questions. the good thing about virtual meetings like this one is that i get to speak with people from across the country with the click of a button. but i also know that there is nothing more heartwarming than when families and friends are finally able to get back together in person after all this time. indeed, we are starting to see “ the smiles returning to the faces, ” and i mean that now quite literally. today i ’ m going to talk about three things : first, i ’ ll briefly discuss the transition away from the london interbank offered rate ( libor ), a topic of particular relevance to this audience ; second, i ’ ll talk about the outlook for the economy and where we are in the recovery ; and finally, what that means for monetary policy. 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 ( fomc ) or anyone else in the federal reserve system. the final countdown i ’ ve spoken about the libor transition many times before, 1 but the message bears repeating, especially now that we ’ re only about six months away from moving off of libor, once and for all. during this critical time, it ’ s important to focus on building a strong and robust foundation for the future so that we never have to go through a transition like this one again. that ’ s why when it comes to choosing a libor replacement, you need to be confident that the rate you use is appropriate and will hold up even under stress. at the financial stability oversight committee ( fsoc ) meeting earlier this month, fsoc members highlighted risks around reference rates that share many of libor ’ s shortcomings, such as being based on thinly - traded markets. 2 the alternative reference rates committee ( arrc ) studied this issue

before the great recession. 2 we ’ ve seen similar declines in r - star in other advanced economies, including in japan and the euro area. as shown in figure 1, the weighted average of estimates of r - star for canada, the euro area, japan, the united kingdom, and the united states is now also half a percent, nearly 2 percentage points below where it stood at the turn of this century. these very low neutral rates are a result of long - term structural factors slowing growth. they ’ re driven by demographic changes and slow productivity growth, which are unlikely to reverse any time soon. low r - star implies that many central banks will be grappling with the challenges of life near the 1 / 4 bis central bankers'speeches zlb, which is why it ’ s so critical to consider how the zlb alters strategies related to monetary policy. monetary policy near the zlb and that ’ s exactly the question we looked at around 20 years ago. in a paper and subsequent fomc briefing in january 2002, my colleague dave reifschneider and i evaluated the effects of the zlb on the macro economy and examined alternative monetary policy strategies to mitigate the effects of the zlb. 3 this work highlighted a number of conclusions based on model simulations. 4 in particular, monetary policy can mitigate the effects of the zlb in several ways : the first : don ’ t keep your powder dry — that is, move more quickly to add monetary stimulus than you otherwise might. when the zlb is nowhere in view, one can afford to move slowly and take a “ wait and see ” approach to gain additional clarity about potentially adverse economic developments. but not when interest rates are in the vicinity of the zlb. in that case, you want to do the opposite, and vaccinate against further ills. when you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress. this brings me to my second conclusion, which is to keep interest rates lower for longer. the expectation of lower interest rates in the future lowers yields on bonds and thereby fosters more favorable financial conditions overall. this will allow the stimulus to pick up steam, support economic growth over the medium term, and allow inflation to rise. these first two conclusions featured in my paper with dave reifschneider from 2000. in that paper, these ideas were described as modifications of an otherwise standard taylor rule for monetary