for release on delivery 10 : 15 a. m. est february 21, 2020 monetary policy strategies and tools when inflation and interest rates are low comments on monetary policy for the next recession, a report by stephen cecchetti, michael feroli, anil kashyap, catherine mann, and kim schoenholtz remarks by lael brainard member board of governors of the federal reserve system at the 2020 u. s. monetary policy forum, sponsored by the initiative on global markets at the university of chicago booth school of business new york, new york february 21, 2020 i want to thank anil kashyap and the initiative on global markets for inviting me, along with my colleague raphael bostic, to comment on this year ’ s u. s. monetary policy forum report by a distinguished set of authors. 1 this year ’ s report addresses the challenges that monetary policy is likely to encounter in the next downturn. this topic is under active review by the federal reserve and our peers in many other economies. 2 looking back the report explores the important question of whether the new monetary policy tools are likely to be sufficiently powerful in the next downturn. the report assesses how unconventional tools — including forward guidance, balance sheet policies, negative nominal interest rates, yield curve control, and exchange rate policies — have performed over the past few decades. it employs a novel approach by examining the effect on an index of financial conditions the authors construct. this approach adds to what we have i am grateful to ivan vidangos of the federal reserve board for assistance in preparing this text. these remarks represent my own views, which do not necessarily represent those of the federal reserve board or the federal open market committee. see stephen g. cecchetti, michael feroli, anil k. kashyap, catherine l. mann, and kim schoenholtz ( 2020 ), monetary policy for the next recession, report presented at the 2020 u. s. monetary policy forum, sponsored by the initiative on global markets at the university of chicago booth school of business, held in new york, february 21. see european central bank ( 2020 ), “ ecb launches review of its monetary policy strategy, ” press release, january 23, https : / / www. ecb. europa. eu / press / pr / date / 2020 / html / ecb. pr200123 ~ 3b8d9fc08d. en. html

metrics would be tailored to the needs of the local community. this tailoring is not possible with a uniform benchmark that applies to all banks and all communities. the large differences between assessment areas illustrate the importance of tailoring thresholds. for example, in morgan county, ohio, lmi families are 49 percent of the population, compared with 31 percent in o ’ brien county, iowa ( figure 4 ). we believe this tailored approach is empirically sound and avoids imposing arbitrary cra performance measures on a bank and its community. in order to ensure it meets standards of safety and soundness, cra lending must be evaluated in the context of the characteristics of the bank and its community. additionally, the proposed retail lending metric would automatically adjust to changes in the business cycle. as many commenters noted in response to the anpr, a uniform ratio that does not adjust with the local business cycle could provide too little incentive to make good loans during an expansion and incentives to make unsound loans during a downturn, which could be inconsistent with the safe and sound practices mandated by the cra statute. industry commenters also expressed concern that discretionary adjustments to the uniform metric are likely to lag behind the economic cycle and undermine the certainty a metric purports to provide. by contrast, the proposed retail lending metrics are calibrated to contemporaneous changes in market conditions, thereby reducing the risk of providing unsound incentives ( figure 5 ). finally, the proposed approach would continue to recognize local context in assessing a bank ’ s cra performance. if a bank receives the presumption of satisfactory by meeting or exceeding the thresholds, an examiner could consider performance context information, including the bank ’ s responsiveness to the community ’ s needs, in determining whether the bank ’ s performance is outstanding at the assessment area level. likewise, if a bank does not meet or exceed the thresholds, it would undergo a full examination, as it would currently, and could receive any level of rating, including possibly outstanding, based on the full range of performance context considerations and clear qualitative criteria. the metrics would be designed to provide greater certainty, while avoiding rigidity. retail test — evaluating retail services retail services can be extremely important to lmi communities, although they do not easily lend themselves to consistent, comparable metrics. it makes sense to use qualitative criteria related to the responsiveness of a bank ’ s products and services and its delivery systems