Transcript of interview with New York Fed's Williams

By Michael S. Derby

NEW YORK (Reuters) - Federal Reserve Bank of New York President John Williams was interviewed by Reuters on Wednesday. The following transcript has been edited for clarity:

MICHAEL DERBY: We speak today on a day where we got some pretty important data. So I thought maybe we kind of start off right there and get what you think about the CPI report from this morning and also retail sales.

JOHN WILLIAMS: Well, I think the data are broadly consistent with the overall trend that we've seen over the last almost two years. We've obviously seen some months' data coming in much softer, inflation data, we saw that in the last the last six months of last year where the inflation data consistently came in, kind of lower than the what seemed to be the trend decline, and then we had three months above, based on what we're seeing so far in the PPI yesterday, CPI today. It looks like the PCE inflation, the core PCE inflation that will come out of that will be consistent with a continuation of the gradual downward trend in inflation.

I try not to take too much signal from one month or two months and look at the broader context of of the inflation trends. So I do think it's a kind of a positive development after a few months where the data were disappointing, but you don't want to over emphasize any one month or another month reading. Again, I go back to the last six months last year, where the data for a number of reasons, I think was kind of sending a falsely optimistic view that the inflation was coming down all the way to 2%, everything was good. There were reasons to believe that some of those readings were kept artificially depressed. And in fact, in the three first three months of the year, we saw some bounce back in some of those areas. But, you know, generally, the overall trend looks reasonably good.

I think the challenge here when you're looking at the data is that little categories can move data around month-to-month quite a bit. And we've seen this in some categories, obviously, with things like auto insurance, which is really reflecting changes in auto prices that have happened in previous years. And the bigger issue is the rent data or the data that's compiled that feeds into the owners equivalent rent and the shelter costs have come down slower than I think I and many people expected. Making sure we understand to what extent is that information about the data in the last couple years that have translated into kind of slower decline in that inflation, or other information there. My view on the shelter data is that it's really the data we're seeing on the new data on rents and the new data that we're seeing on new leases, they've been coming down to pretty low levels. This is really more of an issue of the translation of that, the shelter inflation's just coming down a little slower than expected.

DERBY: It's been a little bit since we last heard your views on the overall sense of the economy. So what is your story now for where the economy is overall?

WILLIAMS: So I think on the economy, in terms of growth, in the labor market, the story is the overall picture has been evolving in a very positive way, at least from a monetary policy point of view. We've seen very good growth, good job gains, a strong labor market. So from that point of view, those are all positive. And it's happening while we've seen a continued diminishment of imbalances between supply and demand in the labor market, and that's been going on now for quite some time, and it continues through the most recent data that we've seen.

So we saw a labor market that was red hot a couple of years ago, job openings were extremely high, quit rates were very high, wage growth was very high. A lot of the indicators were saying the labor market is unusually tight. All of those indicators have moved back to either around pre-pandemic levels, or in a couple of cases are still somewhat elevated, but they've come way down. They're still a little bit elevated in job vacancies, a little bit elevated from pandemic levels, but not a lot. And wage growth is now down to about 4% annual rate which is still above pre pandemic levels, but again, well down from where it was before. So I think what we've seen is a strong economy, good GDP growth, strong labor market, but also that happening in the context of the imbalances really receding.

And then on the inflation front, I think the broader picture is the reduction, or the gradual reduction in inflation that we've seen in the United States, in most advanced economies, in Europe and especially, it has continued, it's not a smooth process, month to month. There are different factors that affect it, but if you look at a picture, you're seeing that this process continued over the last year. If you look at inflation rates in the United States and compare them to the euro area, or UK or other individual countries, or look at Canada, you see inflation rates peaked, after especially after Russia's invasion of Ukraine, and have come down sharply, pretty much everywhere. And if you compare the United States to those other countries, I think one, the two things that stand out is our inflation picked up earlier than their inflation rates and it came down more quickly. In fact, our inflation rate came down quite a bit last year faster than we saw in most countries. Since then, our inflation rate has been kind of bouncing around a little bit. We haven't seen the further progress on disinflation that we're hoping for, but the fact is, our inflation rate today is broadly similar to what you've seen in other countries.

So when I kind of look at the bigger picture, what I would emphasize is the global context to the high inflation, the drivers of inflation around the world, and the ones that have helped drive inflation down, they're much more shared and common across the countries. And now we're in a world where the differences are meaningful and important, but they're relatively idiosyncratic to two different jurisdictions. The big picture of the rise inflation decline is pretty much the same in most places, except for the timing as I mentioned in the US.

DERBY: There's always been a lot of talk of this last mile on inflation. Is this last part of getting inflation down to 2% more challenging, is there anything particularly in it that makes it more challenging?

WILLIAMS: Well, I kind of don't buy into the last mile kind of argument because I think there are parts of the inflation process that tend to be more persistent than others. So that's true. Definitely energy and commodity prices tend to move much more freely, are more volatile, more variable. We've seen that so that's not new or different. We see that similarly with goods prices, they tend to be more responsive to economic conditions. We saw that in the US and around the world and we've seen good price inflation come down very quickly.

In services sector inflation rates, they tend to be more persistent or gradual or inertial here and in other countries, and we've seen that play out pretty consistently here and in other countries, so I don't think there's anything particularly about the last mile or that last bit of the disinflation process.

I think it's just what we're seeing is this, some of the rapid disinflation was what we always expected, whether it's from commodity prices, whether it's from goods prices, the factors that drove those prices up, you know, as those factors have receded, we've seen those inflation rates come down pretty rapidly. And that wasn't such a big surprise. Now, when I think about what it takes to get inflation sustainably back to our 2% target, I do think we need to get the economy and particularly the labor market back into balance. I would still describe our labor market as tight. I mentioned the most of the indicators are back to where they were before the pandemic but you know, that was a level where the labor market was quite strong in some of the indicators like wage growth and job openings. We're still kind of flashing a tight labor market. So I think there's still progress that needs to be made on getting that, returning that balance to the labor market in the overall economy. And that will help keep bringing in service inflation back towards 2%.

DERBY: Has there been progress in getting the labor market in a better balance?

WILLIAMS: Well, I think that it's a it's a interesting question, because I would say so far, and it's hard to know the ultimately the answer to that question, but so far the evidence is that just eliminating the excess demand, the demand imbalance, where demand exceeds supply, is having the desired effect of bringing wage growth down, bringing job vacancies down. All these indicators I'm talking about. The unemployment rate hasn't gone up that much. I mean, it got down to 3.4%. 3.9% is still a very low unemployment, right, a strong labor market. So I don't really think that this has happened through creating slack in the labor market. I think it's really about removing the demand that far exceeds supply. That's what's happened so far. My expectation is that this still has a ways to run in getting, restoring full balance.

It is an open question whether it takes a little bit more than that to bring inflation sustainably to 2%. But my own personal forecast is that unemployment will get to around 4%, which is slightly above my view of the long run unemployment rate, but that it doesn't take much more than that. And I think the going back to 4% this year, 4% say by the end of the year.

But I think that what we've learned from the pandemic period, the Russian war in Ukraine, which I think is a really important part of the inflation thing, what we've seen is that a lot of the inflation we saw was really driven either by big shocks like commodity prices or supply chain bottlenecks, all the events of those few years, and driven in part by the imbalance between supply and demand, and that's different in different countries, but in the US clearly, we had demand exceeding supply. And so we've seen the inflationary factors, the factors have pushed up inflation, recede as we've seen the labor market get back to normal.

What are the things I look at that give me more confidence about that? One is inflation expectations, especially medium and longer term, have been very well behaved. They've got back to pre-pandemic levels. Near-term inflation expectations tend to be more sensitive to inflation data, but again, they've generally moved closer to pre-pandemic levels. So I feel like that has has worked well. We've gotten surprises on the economy say over the last six months. You look at forecasts from the markets, from economists and the surveys we look at, and people clearly are changing their short term views of inflation. We get higher inflation data, we're going to have higher, maybe higher inflation for a little bit longer, but they haven't changed fundamentally their views a year from now. So there's a sense that whatever's happening now is really just a, if you will, a delay getting getting back to 2% inflation and that concerns about an anchoring of inflation expectations are clearly behind us. So there's a lot of reasons to think that inflation is going to head back to 2%. It's going to require us to getting the supply and demand imbalances, to eliminate those as well as we can. But there's factors that are kind of, there's a gravitational pull to get inflation back to 2% given how well anchored expectations have been so far.

DERBY: So when are we getting back to 2%?

WILLIAMS: I think that the key word here is sustainably. It could have been like last year, there were reports, well, you look at the six month change and percent change in core PCE we're there and that clearly wasn't true. I never believed it. I think we were clear that we weren't convinced by that and we would need in fact, we said publicly, we would need to have greater confidence in inflation with a sustained basis. My own forecast is inflation will be probably in the low twos by the end the year, maybe up to two and a half percent for the year as a whole but moving closer to 2% next year, getting inside of 2% by next year and then on a sustained basis at 2% after that.

But we've been surprised on both sides of this. Inflation has come down faster last year than people predicted it even in the context of a very strong economy. We've been surprised somewhat by inflation being higher than expected for a few months. And so in the end of the day, it's not so much what I predict will happen. We have to be data dependent and make the policy decisions to make sure that we get inflation back.

DERBY: So if you're being data dependent, and you want to be sure that inflation is sustainably at 2%, do you have any kind of benchmark or idea of how long it needs to be around that 2% level?

WILLIAMS: It shouldn't be that we're at that 2% level because then I think we will waited too long. If we wait to say, well, inflation has been 2% for a couple of years we probably are well beyond that. It's a greater confidence that we're moving towards our 2% goal. So I think it is the totality of the data. I always start with that. It's not just the CPI or PPI or or another indicator. It's not just one or two months of data. It's looking at the broad contours of that, but it's also looking at the supply and demand imbalances, the risks to the economy. If you'd asked me what's one of the big surprises of 2023, a lot of people started that year thinking that we were likely to have a recession. And then recession talk has pretty much kind of evaporated. The economy's quite strong and quite resilient.

So I think it's looking at all the data. I do think that now that we've seen inflation come well below 3% it's appropriate for us to be focused on both sides of our mandate. Well, we always are focused on both sides of our mandate, but the risks to achieving those goals are moving, have moved to closer balance and it's really a question of getting greater confidence about inflation getting to 2%, but at the same time thinking carefully about what policy will also help us achieve our maximum employment goals as well.

DERBY: You're trying to balance getting the 2% but also at the same time, if the job market were to start to weaken precipitously, that would definitely be something the Fed would take notice of?

WILLIAMS: Oh, absolutely. And that has not happened obviously. If it did, it would hit upon, it would hit both of our goals, in a way if we thought, I thought the labor market was weakening significantly in a sustained way that would affect the achievement of maximum employment, but it would also potentially cause inflation to fall quite a bit. I personally view that we've got a strong labor market. That's great. We want to do our best to preserve that. We have inflation moving toward our 2% goal. We don't have that greater confidence because the first three months of this year weren't giving anything that would give you great confidence in the inflation numbers. Looking at, watching the totality of the data, just weighing all the factors, kind of where the data are telling us about the outlook and the risks of that outlook in achieving our goals as best as possible in a very uncertain environment.

DERBY: Just to make sure I understand. When you talk about balancing the two parts of the mandate, it would be the idea that even if inflation was above target but the labor market was weakening, in theory that should feed back into the inflation data at some point, the objectives are ultimately moving in the same direction.

WILLIAMS: Right. In fact, in our long run goals and monetary policy strategy statement that we've been doing for over 10 years, we have talked about those, that kind of situation where you've got either a conflict of your goals, or the goals are telling you do the same thing. But I think, from my perspective, again, with inflation below 3% moving in the right direction and labor market still strong, we want to do our best to achieve both for goals. Getting back to 2% sustained basis is absolutely critical. I don't want to lose track of that, but we accomplish that in a way that best achieves both of our goals.

DERBY: So then a natural segue there is into the monetary policy outlook. The the March meeting officials collectively penciled in three rate cuts for the year. You said early the Fed will eventually cut rates but nothing more than that. So what's your outlook on on monetary policy given where we are with the all the numbers this morning?

WILLIAMS: First of all, let me start with a question that seems to be a popular question that I'm sure you'll ask me at some point is, is monetary policy restrictive? And I'm going to start there because that's kind of how I start with thinking about monetary policy, is the stance of monetary policy achieving the goals that we set out, the maximum employment, price stability and specifically for me, seeing the labor market and the economy get into a better balance between supply and demand, seeing inflation consistently move toward our 2% goal over time?

So that's the first question I ask and this is an impossible question to answer. It's a philosophical question because monetary policy does not occur in a vacuum. Monetary policy occurs in the context of global factors affecting supply and demand, the labor market, trade, productivity. All the things that are happening are affecting supply and demand at a given point.

So then I say, okay, I can't figure out what everything means in terms of monetary policy. I can ask a simple question. Given all the factors that are happening globally, in terms of the economy and financial system, what's happening here in the United States in terms of the labor market, and the outlook and the risks, is monetary policy, currently the stance of monetary policy that we put in place, is it actually consistent with the achievement of these markers that I talked about, like the labor market coming back into balance, the inflationary pressures coming down, wage growth coming down, all these different things that I mentioned.

And to me, the evidence is absolutely clear. We're seeing the economy move pretty consistently over the last now almost two years towards achievement of our goals. And so is this monetary policy the big driver of that? No, everything is impacting what's happening all around the world. Everything is affecting that, but monetary policy is positioned in a way that's helping that process continue and move towards a desired outcome.

So I think monetary policy is restrictive. It is helping the economy get into better balance, helping to move inflation back to our 2% goal in a way that I think is well positioned in terms of achieving or two goals and in managing the risks to those.

So then the question comes, well, okay, you said that, you woke up, you felt good monetary policy is in a good place. It's restrictive. So what would cause me to think to change that. And I think that right now I do feel that very much that monetary policy is in a good place. The mix of data that we're getting on the real side of the economy, meaning spending, consumer spending, business investment, GDP and all that is telling us that the economy is not really at a near term risk, it is strong. Most indicators are very positive. The labor market is strong, those indicators are positive.

And so so if you were to ask me, is monetary policy too tight right now in terms of achieving our goals, I don't see signs that we're harming the economy right now or interfering with the achievement of our goals. So I don't see any need to tighten monetary policy today.

I go back to my answer to the question that I just mentioned is, is restrictive stance of policy moving the economy over time to achieve our goals, and I think that the answer is yes.

So how will that change? Well, I think two factors. One is watching the data, both on the totality of the data, what'shappening in the labor market, what's happening to demand, what's happened to all those indicators. Or is that still the case that monetary policy doesn't seem too tight or is it monetary policy well positioned to achieve our goals?

Now, the reason I say that monetary policy will eventually, I think, we will need to see lower interest rates at some point is because as inflation gets closer and closer to our 2% goal, at some point, it's got to be the case that we don't want to continue to be exerting influence, restrictive influence on the economy. There's a certain point where you want to say we've gotten the balances in supply and demand, we've got inflation to 2% on a sustained basis.

So at that point, you're not trying to put restrictive force on the economy, you would want to have a more neutral kind of position. So between now and that point, at some point, there have to be, in my view, interest rate cuts would be appropriate between now and that point. I don't see any indicators now telling me oh, that there's a reason to change the stance of monetary policy now, and I don't expect that, I don't expect to get that greater confidence that we need to see on the inflation progress towards a 2% goal in the very near term.

So my answer about eventually is really more of the fact that I think eventually we will get toward our goal, we'll be in a place where monetary policy needs to be neutral. So that's, that's really almost a logical statement. At some point, we'll want to be more neutral and that means a lower interest rates at that point. I don't see that happening, like I said, in the very near term, because I think we do need to get this greater confidence in inflation, and I'm not seeing signs that the maximum employment goal is at at risk.

DERBY: Markets I mean, obviously markets move around and it's volatile. Futures markets this morning were projecting two quarter-percentage-point cuts by the end of the year, is that a reasonable outlook?

WILLIAMS: So I am going to not answer that directly. Do I think the markets have it right? I don't know. I don't know nor do the market participants know whether that's the right answer. That's how they're interpreting the flow of data.

I will say something a little different. I think that the markets have done reasonably well - again, not saying they are right or wrong - as the data has has come in over the say, going back six months, and the inflation readings were surprisingly low, market expectations of Fed policy were well, inflation is moving quickly to the 2% goal, and you know, they're probably cuting rates by more or sooner. And then as the inflation data turned the other way, they adjusted their views in a way that I think qualitatively is appropriate.

Because if we are data dependent, and the data are leading us one way or the other, that will adjust the timing of our actions. And of course, on the recent data, I think, starting with the employment report, and the more recent readings, they're doing that same adjustment to thinking about what we're trying to do.

To me this is a positive sign. Again I'm not saying do you have it right or wrong. But the view of market participants broadly defined is we're focused on achieving 2% inflation on a sustained basis. We're focused on achieving maximum employment. When the data moves one way or the other relative to achievement those goals, they adjust their views of policy.

Again, I don't see signs that they're saying, oh, wow, we got some high inflation and that means the expectations of inflation or interest rates years off in the future are fundamentally different. It's mostly a reaction of how policy in the US or wherever is going to adjust over the next year or two given the new information. Again, I can't really determine is this going to be right or wrong. Because we're going get more data in between now and then and it's our job to take all that information and do our best and make the best decisions. But I do think it's a positive sign that we're not really seeing a lot of market reactions that seem to be kind of out of tune with the basic flow of the data that we're seeing.

DERBY: Right. So what you're saying is basically, you're all taking in this information adjusting as it comes in without knowing what will actually happen. Is that right, given the unpredictable nature of the data that's coming in?

WILLIAMS: Well, I think that people in the markets obviously have to come to a view and when we do our next projections, we will, each of us will have to write down something. But I think that the point you're making is there's a great deal of uncertainty, especially given how the economy's evolved and things are overall moving closer to achieving our goals, then there's going be uncertainty about what exactly is the appropriate policy. And also, you know, one of the things that change has changed quite a bit is this assessment of where the risks are. There was a lot of concern about recession here and around the world. Some countries have had some technical recessions in other places. But you know, the striking story of the past year or a year and a half is that in the advanced economy there has just been the resilience of the economies and in seeing the pretty steady decline in inflation. So I agree with you that what happens in the future it's hard to predict. We just need to stay focused on doing the best we can do to achieve our goals.

DERBY: You mentioned earlier in your comments that monetary policy seems to be in the right place to, you know, as part of the totality of things that are happening to guide the economy to where that you wanted to go. But there have been questions about the transmission, the effectiveness of monetary policy in the economy, and I think Chair Powell talked about how it may be a little bit less because a lot of people locked in low rates. So what is your read on the transmission powers of monetary policy? How responsive is the economy when everyone who's got their sub 3% mortgages won't won't let them go for any reason?

WILIAMS: Well, I do think that's an important factor. That one that you just mentioned, is that a lot of people refinance at very low interest rates. Those people have, they've got an economic asset with that low mortgage, that if you sell your home, you lose that, the value of that and I think that affects behavior, for sure.

We saw a version of this after the financial crisis, it was a bit of a lock in story then that dissipates over time. People do make decisions because of job changes or personal decisions, they'll move and it's kind of it slows things down. Having studied economics and taught economics one of the challenges always is, is what's happening in a movement along a curve, or is it moving the curve? Is monetary policy having its usual effects, or is there just a lot going on that's affecting the economy besides monetary policy? I don't really know the answer to that.

And that's why when I see some of the debate about is monetary policy less or more effective than in the past, I'm not 100% sure that we'll ever know that. I do know that there are a lot of factors in the last few years that are affecting the economy, so I would probably put beyond the point that you raised the issue about the lock in, which I think is pretty clear that that's a factor.

More generally we are making monetary policy in an environment with enormous uncertainty. A lot of the effects that we're seeing today, even in the latest data, we're talking about in March and April data, are still echoes of events that happened during the worst of the pandemic. The example of auto insurance increases--those are because car prices skyrocketed during the pandemic, and they're still very high. These are things are coming up in the data a year later or two years later, for various reasons, those things don't change until much later. I think on the rent data, the shelter inflation data, a lot of this is still effects in the data of things that already had happened.

Now, you don't ignore them, it's part of the, kind of the totality of the data. But one of the things is that we have to be very clear on when we think about monetary policy, we can guide the economy going forward.

We can't really change what happened two years ago in terms of some of these echo effects I mentioned, or catch up effects they're sometimes called. Some price increases are really just follow on from things that happened in the past. So you take that into account, you study this very carefully. But really our job, I try to remind myself to think about where the economy is today and where it's going, that's probably going to be more important than some of these technical things about prices coming in artificially low or artificially high because of pandemic related kind of events.

DERBY: One last policy question. When the forecasts are done for the June meeting, do you think is it likely that they'll show fewer rate cuts, if any?

WILLIAMS: Mike, over all the years, I always give the same answer and you know my answer my answer. It's the middle of May right now. It's way too early to predict what I will think about any of those issues. We will get together with our economic team, getting all the materials, all the data, we have come to a decision about the outlook for the economy, economy, and each of the participants will submit their own views on the paths for the economy and policy. It is too early to speak to that.

DERBY: Fair enough. At the last Fed meeting the pace of the balance sheet drawdown was slowed. The idea is you slow the pace now to reduce the risk of running into trouble and potentially you can even get to a smaller balance sheet. Is there any economic impact from any balance sheet stuff happening right now? Is there any suppression of long term rates that's happening? Is this all just technical? Does this only work when there are announcement effects and then it just goes on until some other new big thing happens. Is balance sheet policy having any monetary policy like impact on the economy right now?

WILLIAMS: I have to say that's almost as hard as the question about is monetary policy being less or more effective, versus or just a lot of things happening?

Because you're asking a causal question. There's a lot of factors are driving, and it's a great question. It's important question, but it's asking about causation here. And I can look at 10 year rates and I can look at our balance sheet, but there's so many other factors that are affecting supply and demand for Treasury securities, other fixed income securities that affect those those rates.

I would say, from my perspective, the minor kind of adjustments in the process we've gone through in reducing the balance sheet and now slowing the pace of reduction on the Treasury security side, I mean, they're designed that any of these kind of effects on yields, or in the macro economy, are going to be very gradual and relatively muted.

I do think that our balance sheet, our purchases of securities, do on net, holding everything else fixed, lower long-term interest rates, they lower the spreads on these, you know, the term premium, if you will, on the Treasuries and on the MBS. I think those effects are real. I think that's a powerful tool of monetary policy. I think we do see it, tend to see it a little bit more when there's announcements or things like that because the data is moving kind of sharply with the change in the policy, but I do think it's there. But the way we're doing the balance sheet reduction is designed to be gradual and smooth so that it isn't disruptive or creates, you know, capital movements in financial conditions while we're doing that. But net net, I do think, going from a large balance sheet down to a smaller balance sheet overall is going to have some probably modest effect on term premium in the Treasury market, but modest especially relative to all the other things that are happening out there.

So I wouldn't say it's zero or it doesn't exist or something. But I do think it's relatively minor as to the other factors that are driving the term premium.

The on this question, just to reiterate, what you said is, the purpose of slowing the pace of reduction of the balance sheet is completely to smooth this process for us to be able to better monitor and to understand what's happening with the demand for reserves and the ampleness of the supply of reserves. It gives financial institutions time to gradually adjust to changing market conditions. It's really about making sure this runs smoothly. And like you said if the if it goes smoothly, then ultimately, we maybe we can get through even a lower level balance sheet consistent with ample reserves.

DERBY: So another question about sort of the technical part of the Fed world, the Discount Window. Your bank just put out a paper, a staff report saying you're probably never going to get the stigma off of it. The authors are talking about looking to things like the Bank Term Funding Program or SRF. So, I'm curious your read on the situation because obviously the Fed is in a broader effort to try to get people ready to to sue the Discount Window. So I'm curious, can the Discount Window be made useful? Or are we going to have to think about other options for emergency liquidity measures?

WILLIAMS: First of all, it's very helpful to have research on these types of topics so that we understand the issues better and any decisions or any kind of approaches we take are really well informed. And we have amazing economists here at the New York Fed who do great research, of course, that's research that's not the official view of the Fed on any of these issues.

So I think that from my perspective, what we saw in 2023, and I think the evidence supports is, there is always a stigma about institutions coming to the Window, in you know, in borrowing from the Window that's not really related directly to the purpose of the Discount Window. But just the idea that people will ask questions, even if it's like, either inside the organization or maybe in the markets, saying, well, why didn't you just get liquidity from somewhere else? What's the problem that you're you're having to go to the Fed, despite the fact that we aren't saying that, it's perfectly fine. Other people are not quite sure what's going on. And other banks might say, well, if some bank might be needing to get liquidity from the Fed, is that something there's something going on there?

So I think there's going be some stigma, just because there's imperfect information now. Other central banks around the world have looked at ways to try to reduce that either by having facilities basically be used all the time so it normalizes the use of of liquidity facilities, and I think that actually seems to work.

The thing that really worked in 2023 was when there was broad based liquidity concerns and stress in the banking system coming out of Silicon Valley Bank issues and everying that followed that, banks came to the discount window because it made sense. The BTFP had that too, that kind of broad intensity of banks saying this is appropriate to do, I should basically make sure I have that liquidity, take these actions, go into the discount window under the normal programs.

Similarly, so I think that this gets to how the stigma is depends on the circumstances. If you're the only bank and you've say oh, you know, I want to go the Window and nobody else is, then people might, you know, they might have an issue with why you're doing that. When there's broader market based liquidity concerns that we saw after the financial crisis, we've seen other times that I think that stigma gets less it doesn't completely go away. But clearly banks feel comfortable saying, hey, there's a general market issue. It's not particular to my institution or something, and we'll come in.

And so I think that's a lesson that we want to design the facilities to be very effective when there's more broader market stress or concerns about what's going on in the banking banking system like we saw last year. And so we have to get our system, we have to basically, you know, sign up I would say many banks and get banks prepared to use a discount window, if there's a general market stress. If they they need to access the Window, they have signed up, prepared to do that. These are positive signs, we are seeing improvements on that. And I think that's an important lesson from this is, you know, even if there's going to be some residual stigma that despite our best efforts, we can't totally eliminate during times of market stress, you really do want the banking system able to utilize the credit from the Fed to support financial stability and everything in being prepared to do that is important. So, we're trying to do the anti stigma thing of signing up for the discount window and testing, pledging collateral. You know, these are good things.

(Reporting by Michael S. Derby)