RBA: Minutes of the Monetary Policy Meeting of the Reserve Bank Board

Thank you, President Schmid, for the kind introduction and for the invitation to speak here today.1 It is an honor to be in Kansas City and in the beautiful 10th District. I welcome the opportunity to attend events like this one because I believe it is essential for Federal Reserve policymakers to share their views with the public and, just as important, to hear directly from business leaders, workers, and families about how they are experiencing the economy. In many ways, the Kansas City region is a perfect place to make those connections. Sitting at the confluence of the Kansas and Missouri rivers, this area has been a place where people met and shared ideas long before the United States existed. And that tradition of making connections has continued to present day. The Pony Express was founded just north of here in St. Joseph, this is the greeting card capital, and, next year, this area will bring people together from around the globe for soccer's World Cup. I am happy to have the opportunity to continue the tradition of making connections in Kansas City with all of you. Today I would like to share my economic outlook. I will discuss how I see recent economic activity and talk about developments pertaining to both sides of our dual mandate of maximum employment and price stability. I will then offer my current view of monetary policy including the Fed's balance sheet before turning to our discussion. Economic Outlook In shaping my economic outlook, I consider a wide variety of government, administrative, and private-sector data, including data collected by the Kansas City Fed and fellow Reserve Banks across the country. Casting a wide net for i Fed's Jefferson: It's unclear how much official data will come before the meeting Fed's Jefferson: Current Fed policy rate still somewhat restrictive. Fed's Jefferson: The balance of risks has shifted in recent months, with increased potential downside to employment Fed Vice Chair Philip Jefferson did little to build the case for either a December rate cut or an extended pause: “The evolving balance of risks underscores the need to proceed slowly as we approach the neutral rate.” Recent cuts were appropriate because the balance of risks…

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I am pleased to be here today to discuss a core part of the Federal Reserve's mission: banking supervision.1 Much of what the Fed does to conduct monetary policy, promote a stable financial system, provide a safe and efficient payments system, and support consumers and community development depends on a healthy banking system. Lending fuels entrepreneurship, helps families buy homes, and enables communities to thrive—all critical aspects of a healthy economy. Ensuring banks operate in a safe and sound manner is essential because the banking system sits at the center of the economy. That is why banks' risk-taking must always be guided by clear guardrails, underpinned by effective banking supervision. We need these guardrails because experience shows that market discipline alone does not prevent excessive risk-taking by banks.2 As I've noted before, time and again, periods of relative financial calm have led to efforts to weaken regulation and supervision.3 This has often had dire consequences, as we saw prominently during the Global Financial Crisis. In the midst of that crisis, I saw first-hand in my own community in Michigan what weak regulation and supervision could mean: foreclosed homes, shuttered businesses, and lost jobs. According to the Federal Reserve Bank of Chicago, Michigan's unemployment rate was 14.9 percent in 2009, meaning one in seven workers were out of jobs.4 Nationwide, the consequences were immense: nearly 9 million jobs lost, 8 million homes foreclosed upon, and a $17 trillion loss in household wealth.5 We are now, I believe, at a moment of inflection in the regulatory and supervisory approaches that help keep banks healthy. There are growing pressures to weaken supervision—to scale back examiner coverage, to dilute ratings systems, and to redefine "unsafe and unsound"—in ways that will make it harder for examiners to act before it is too late to prevent a build-up of excessive risk. These pressures present real dangers to the American people. The Mission of Banking Supervision Let me begin with the mission of bank supervision, which is to promote a safe, sound, and efficient banking system that supports a strong economy.6 Our banking system relies on trust. That trust is earned when banks behave responsibly and when supervisors effectively perform their statutory duties. These duties include verifying that banks are operating soundly and identifying and addressing weaknesses before they threaten the solvency of particular Fed's Barr: Bank supervision relies on credible ratings and strong staff. Fed's Barr: Moves to weaken bank supervision present real dangers.