william c dudley : transcript of fireside chat at york college in queens transcript of a discussion between mr william c dudley, president and chief executive officer of the federal reserve bank of new york, and dr olajide oladipo, professor and chair of the business and economics department, during the fireside chat at york college in queens, new york city, 24 march 2017. * * * dr. olajide oladipo : president dudley, can you please share with us the purpose of your trip here today to queens? president dudley : so, there are 12 federal reserve banks around the united states, and one of them is the federal reserve bank in new york that sits downtown in manhattan, and near wall street. our second district consists of new york, northern new jersey, fairfield county, connecticut, puerto rico, and the virgin islands. haven ’ t gotten to the virgin islands yet. as part of our mission, we want to represent the communities in our district, and so four times a year, i get on the road, and i go out to visit people, to find out what ’ s really happening on the ground. it ’ s meeting with businesses, meeting with people from educational institutions, going to visit manufacturing facilities, community development organizations. it ’ s really designed to do two things. one, explain sort of a little bit of what we do – like for example there, in the introduction, talking about this bis. what the heck is the bis? well, bis is a bank for central banks that sits in basel, switzerland. in fact, what did i do last weekend? well, i was in basel, switzerland, at the bis. this is where central bankers get together from across the world, exchange information with one another. so, the first thing is to explain ourselves to people in the community. because the federal reserve is pretty mysterious in terms of – when i went to grad school even, i wasn ’ t really sure again what the federal reserve was. had to be explained to me. the second thing we do in the community, and this is the more important piece, is to really learn what ’ s going on, on the ground, in the community. what ’ s happening in terms of businesses – are they successful? if they ’ re having trouble, what are the reasons for the trouble? do they have access to the credit? can they find people with the job skills they need to support their businesses? what are the challenges

##ized to refinance when mortgage rates decline below the rate on their current loan. in contrast, most market participants expect longer - term interest rates, including primary mortgage rates, to rise over policy normalization, and that therefore mortgage refinancing activity will be modest. as a result, most expect mortgage principal repayments to run below the level of the redemption cap set by the fomc. projections for these repayments, drawn from the july 2017 update to our annual report that i discussed earlier, are shown in lefthand side of panel 3. 6 / 15 bis central bankers'speeches the benefit of the cap, even though it is unlikely to bind, is that it limits the amount of variation in the pace at which securities, and particularly mortgages, will flow back into private hands. recall that the left - hand figure in panel 3 is based on rising interest rates over an ongoing economic expansion. for comparison, the right - hand figure in panel 3 shows the projected mbs principal repayments for a scenario in which interest rates come in two percentage points below market participants ’ expectations. in this scenario, the cap operates to constrain the flow of securities into the market. while such a lower - rate outcome is not a central expectation, it is certainly possible. by providing market participants some certainty that the pace of balance sheet decline will be gradual across economic scenarios, this plan should help mitigate the risk of unexpectedly sharp shifts in asset prices, liquidity, or market functioning should markets begin to put greater weight on lower interest rate scenarios. indeed, by promoting greater confidence in the stability and liquidity of the treasury and agency mbs markets across economic outcomes, the fomc ’ s plan should result in lower risk and liquidity premia on these assets relative to normalization plans that do not promote such confidence. the importance of predictability is underscored when one considers that in recent years, adverse economic shocks have generally been associated with sharp falls in longer - term interest rates. such declines would tend to bring about faster mbs repayments and, if the outflow from the federal reserve ’ s portfolio were not constrained by a cap, an unforeseen tightening effect on financial conditions, amplifying the adverse shock. prepared for the unexpected while i am confident that the fomc ’ s plan will work well, there ’ s always the risk that events unfold differently than expected. in my view, we best prepare for the unexpected in two ways :