for release on delivery 11 : 00 a. m. est january 8, 2021 u. s. economic outlook and monetary policy remarks by richard h. clarida vice chair board of governors of the federal reserve system at the c. peter mccolough series on international economics council on foreign relations new york, new york ( via webcast ) january 8, 2021 it is my pleasure to meet virtually with you today at the council on foreign relations. 1 i regret that we are not doing this session in person, as we did last year, and i hope the next time i am back, we will be gathering together in new york city again. i look forward to my conversation with steve liesman and to your questions, but first, please allow me to offer a few remarks on the economic outlook, federal reserve monetary policy, and our new monetary policy framework. current economic situation and outlook in the second quarter of last year, the covid - 19 ( coronavirus disease 2019 ) pandemic and the mitigation efforts put in place to contain it delivered the most severe blow to the u. s. economy since the great depression. economic activity rebounded robustly in the third quarter and has continued to recover in the fourth quarter from its depressed second - quarter level, though the pace of improvement has moderated. household spending on goods, especially durable goods, has been strong and has moved above its pre - pandemic level, supported in part by federal stimulus payments and expanded unemployment benefits. in contrast, spending on services remains well below pre - pandemic levels, particularly in sectors that typically require people to gather closely, including travel and hospitality. in the labor market, more than half of the 22 million jobs that were lost in march and april have been regained, as many people were able to return to work. inflation, following large declines in the spring of 2020, picked up over the summer but has leveled out more recently ; for those sectors that have been most adversely affected by the pandemic, price increases remain subdued. the views expressed are my own and not necessarily those of other federal reserve board members or federal open market committee participants. i would like to thank chiara scotti for her assistance in preparing these remarks. - 2while gross domestic product growth in the fourth quarter downshifted from the once - in - a - century 33 percent annualized rate of growth reported in the third quarter, it is clear that since the spring of 2020, the economy has

reduce the amount of liabilities that roll off in less than 30 days. deposits which are deemed to be subject to high run - off rates and those which are callable within 30 days will be more expensive for banks. banks are therefore working towards converting many of these less stable deposits into a more stable deposit base. for example, retail and sme deposits are deemed to be ‘ stickier ’ than institutional deposits. part of this transition is being induced by price signals : interest rates offered on new or existing deposit products which are deemed to be more stable are rising relative to interest rates on products deemed to be less stable. these types of changes appear to have accelerated recently as we draw closer to the implementation of the lcr and probably still have some way to run. to date, we have seen only a few banks offer notice of withdrawal accounts to customers. these accounts require the depositor to provide the bank with 31 days or more notice of a withdrawal ( obviously 31 days is one day longer than the 30 - day liquidity stress period ). interest rates offered on these accounts are among the higher rates offered in the deposit market. it may be that we see a broader move to these types of accounts or changes in terms and conditions on existing accounts through the course of next year. we have also seen a fall in the growth of term deposits relative to transaction and at - call deposits over the past few years. in fact term deposits as a share of banks ’ funding has been falling while transaction and at - call deposits have been growing strongly. part of this is because a flattening of the yield curve has made investors less inclined to invest in longer term deposits. but in part it is because under the lcr, some transactional and operational deposits are subject to lower run - off rates than deposits that are largely attracted by higher interest rates. indeed, there has been some indication that banks have been transitioning depositors into deposit products treated more favourably under the lcr. but banks are not limited to just changing their deposit offerings. we could see them look for more opportunities to package retail deposits with other products as the deposits of customers that also have other relationships with the bank are deemed to be more stable under the lcr. so to conclude, the full implementation of the new liquidity regime in australia is imminent. from the beginning of next year, banks in australia will be fully subject to the liquidity coverage ratio. this has already had an impact on the pricing and nature of a number