’ t invest, and the economy suffers, resulting in lost jobs and income. 1 financial markets aren ’ t static — they evolve over time in response to changes in technology, regulation, and business models. the treasury market is not immune to this process of change. we have seen the emergence of principal trading firms, changes in regulations of key intermediaries, and the growth of nonbank financial institutions. 2 with this evolution, it is vitally important to ensure that safeguards and systems also evolve so that these markets function well in all circumstances and conditions, including unprecedented events like the pandemic. we need to reflect on and learn from these experiences and consider ways to make these and other markets more robust, thereby minimizing the potential negative consequences to the economy and the need for extraordinary policy responses. market conditions in september and march i know it might seem like a lifetime ago, but allow me take you to mid - september of last year. a number of otherwise ordinary occurrences — including corporate tax payments and settlement 1 / 4 bis central bankers'speeches of newly issued treasuries — were expected to put some upward pressure on short - term rates, but the market response was out of proportion to the magnitude of the shock. conditions in funding markets became highly volatile, with both secured and unsecured lending rates rising sharply. indeed, the size of the reaction in repo rates, the spillover to the federal funds market, and the emergence of strains in market functioning were well outside of recent experience. and the market stress was looking to get worse, not better. 3 4 in response to these developments, the federal reserve conducted a series of large - scale repo operations with the aim of calming conditions in funding markets and bringing the federal funds rate within the target range. the provision of liquidity had the desired effect of reducing strains in markets, narrowing the dispersion of rates, and keeping the federal funds rate within the target range. 5 moving to more recent events, in march of this year the global spread of the pandemic led to a rapid and massive movement of funds around the world as investors sought to protect themselves from the highly uncertain and darkening economic outlook. these flows threatened to overwhelm the financial system and resulted in intense strain and disruption in short - term funding markets and markets for treasury securities and agency mortgage - backed securities. 6 measures of market functioning deteriorated to levels near, or in some cases worse than, those we saw at the peak of the 2008

economy and financial system, the federal reserve is — and indeed, needs to be — mindful of the international effects of its policy. that is because those consequences can have important potential spillbacks to the u. s. economy and financial markets. the bond market “ taper tantrum ” of 2013 highlighted that prospective changes in u. s. monetary policy could affect the emes — particularly those with existing vulnerabilities — and how those consequences, in turn, could spill back to the united states. this episode underscored the need for clear communication and transparency around u. s. policy so that expectations can adjust smoothly and be appropriately calibrated to what is likely to occur. as you know, the federal reserve has become increasingly transparent in recent years, in part to mitigate such risks. good communication and transparency is always important during periods of conventional policy normalization. but, good communication and transparency may be even more important when one begins to unwind unconventional monetary policy actions, such as balance sheet policies with which we have little prior experience. moreover, i would surmise that adjustments to balance sheet policies undoubtedly affect asset prices in ways that differ from changes in short - term interest rates. earlier this month, we announced an addendum to the fomc ’ s policy normalization principles and plans. 3 in this addendum, we spelled out how the balance sheet normalization program would work. this was another step in a long chain of communications about the balance sheet — incremental steps that highlight the evolution of our communication practices. i hope you would agree that we have taken a very measured and careful approach. this process started with the initial release of the policy normalization principles and plans in september 2014, which indicated that the fomc planned to reduce securities in a gradual and predictable manner. related comments followed in the minutes of the july 2015 fomc meeting and the december 2015 fomc statement. subsequently, fomc participants discussed potential long - run frameworks for monetary policy implementation as detailed in the november 2016 fomc minutes. next, the march 2017 fomc minutes reaffirmed that a change in balance sheet policy would be gradual and predictable, and achieved primarily by changing the reinvestment policy. these minutes also noted that most participants judged a change in reinvestment policy would likely be appropriate this year, should economic data develop as they expected. then, in the may 2017 minutes, it was noted that nearly all participants had a