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

this objective has already been achieved as the market rate is now moving in line with the bsp ’ s policy rate. in the long term, recalibrations and additions to the monetary policy tools will strengthen the bsp ’ s influence on the demand and supply of money. i am pleased to note that the recently enacted amendments to the bsp charter restores our authority to issue our own debt securities ( even during normal times ) which further enhances our monetary policy tool kit. further, we will continue to pursue the reduction of reserve requirements from the current 16 percent to single digit by 2023 to promote a more efficient financial system. this is part of the bsp ’ s broad financial sector reform agenda. we expect that all these will aid in the further development of philippine capital markets by fostering money market transactions and active liquidity management by philippine banks. indeed, the bsp ’ s monetary policy framework has been an effective tool in mitigating the risks emanating from here and abroad. however, we recognize that as the domestic and world economy evolve, all our tools need to be kept constantly appraised. we continually take measures to further enhance the implementation of our inflation targeting framework by improving our array of models, data, software, and the capability of our technical staff and modelers. we likewise ensure prudent exercise of judgement by using all relevant data in our policy decisions. moreover, we recognize the value of being able to communicate the basis of the bsp ’ s policy decisions in a manner that is easy for the public to understand. all these concepts, and more, will be the subject of this conference ’ s discussions in the next two days. we can rely on an eminent group of economists, who have joined us to present their work and examine issues concerning inflation dynamics and monetary policy. as central bankers and policymakers, we appreciate this effort to continuously expand our 2 / 3 bis central bankers'speeches understanding of inflation dynamics and its implications on monetary policy. this is especially so amid the current global economic environment that continues to shift with the ongoing policy uncertainties and structural changes. i wish you all a very fruitful conference and a pleasant stay in manila. 1 search excluded patents and citations, conducted on 24 july 2019. 2 2 based on the international monetary fund ( imf ) world economic outlook april 2019 database. 3 3 inflation in emerging and developing economies evolution, drivers, and policies, eds. j. ha, m. a. kose,