could readily imagine the economy experiencing an overall product price deflation in which the problems associated with a zero constraint on nominal interest rates or nominal wage changes would seldom be binding. nevertheless, even if we could ensure significantly more rapid productivity growth than we have seen recently, there are valid reasons for wishing to avoid ongoing declines in the general price level. if increases in both inflation and deflation raise risk premiums and retard growth, it follows that risk premiums are lowest at price stability. furthermore, price stability, by reducing variation in uncertainty about the future, should also reduce variations in asset values. but how are we to know when our objective of price stability has been achieved? in price measurement, a distinction must be made between the measurement of individual prices, on the one hand, and the aggregation of those prices into indexes of the overall price level on the other. the notion of what we mean by a general price level - - or more relevantly, its change - - is never unambiguously defined. issues of appropriate weighting in the aggregation process will presumably always bedevil us. but it is the measurement of individual prices, not their aggregation, that pose the most difficult conceptual issues. at first glance, observing and measuring prices might not appear especially daunting. but, in fact, the problem is deceptively complex. to be sure, the dollar value of most transactions is unambiguously exact, and, at least in principle, is amenable to highly accurate estimation by our statistical agencies. but dividing that nominal value change into components representing changes in real quantity versus price requires that one define a unit of output that is to remain constant in all transactions over time. defining such a constant - quality unit of output, of course, is the central conceptual difficulty in price measurement. such a definition may be clear for unalloyed aluminum ingot of 99. 7 percent or greater purity in wide use. consequently, its price can be compared over time with a degree of precision adequate for virtually all producers and consumers of aluminum ingot. similarly, the prices of a ton of cold rolled steel sheet, or of a linear yard of cotton broad woven fabric, can be reasonably compared over a period of years. but when the characteristics of products and services are changing rapidly, defining the unit of output, and thereby adjusting an item ’ s price for improvements in quality, can be exceptionally difficult. these problems are becoming pervasive in modern economies as high tech and

segment of the market, as well as the futures markets. 3 the intense and widespread selling pressures appear to have overwhelmed dealers ’ capacity or willingness to absorb and intermediate treasury securities. 4 in the end, the federal reserve took a number of steps to support smooth market functioning, which i will describe in a moment. fortunately, even with these strains in financial markets, banks were able to remain a source of strength to the financial system and the economy. banks entered this crisis with much stronger balance sheets than the last one — with more and higher - quality capital, more liquid assets, and less reliance on fragile funding. this is a testament to reforms implemented by the fed and other agencies in the aftermath of the gfc. not surprisingly, however, the magnitude of the economic and financial disruptions from the covid event posed some major challenges to banks. first, in march, many businesses — unable to satisfy their large cash demand through cp or 2 / 5 bis central bankers'speeches corporate bond issuance, for the reasons i described earlier — drew down on their existing credit lines with banks in order to raise cash. as a result, commercial and industrial ( c & i ) loans in the banking system increased by nearly $ 480 billion in march — by far the largest monthly increase ever. banks were able to fund these loans without notable problems through inflows of core deposits, other borrowing, and, to a lesser extent, by using their buffers of liquid assets. the inflow of deposits resulted from increased demand for safe haven assets, reflecting confidence in u. s. banks. while banks were a source of strain during the gfc, they were a source of strength during this crisis. after march, as the economy started to recover, many firms repaid these drawdowns and c & i lending by banks declined. if the drawdown of credit lines tested the resilience of banks to liquidity shocks, financial distress at borrowers has been testing the resilience of banks to losses. the covid event has made it harder for many borrowers — businesses as well as households — to repay their debt. encouraged by supervisors, banks have been working actively with their customers and have agreed to grant forbearance to millions of borrowers. at the same time, banks have recognized that the credit quality of many loans has deteriorated considerably, and they have made sizable provisions to prepare for expected loan losses. while banks have continued to lend, we have seen a notable tightening of bank lending