Michael Held: The financial crisis - perspectives from a decade on Remarks by Mr Michael Held, Executive Vice President of the Legal Group of the Federal Reserve Bank of New York, to the Administrative and Banking Law Committees of the Association of the Bar of the City of New York, New York City, 15 November 2017. * * *  Introduction Thank you to the City Bar and the members of its Administrative and Banking Law Committees. It’s a pleasure to be able to speak with you. The views I express today are my own, and not necessarily the views of the Federal Reserve Bank of New York or the Federal Reserve System.1 I’d like to take my time here with you today to reflect a bit on the decade since the financial crisis. A decade later, while the most acute effects of the crisis have dissipated, American families and businesses—the Main Street economy—continue to feel or remember its longer term effects. Savings were depleted. Homes and businesses were lost. Many Americans’ careers were fundamentally altered. Consumer spending dropped more severely on a year-over-year basis than it had since the Second World War.2 A decade later, recognition of the human element of the Great Recession motivates both the private and public sector to remain vigilant in our efforts to prevent a future crisis. Remembering the effect of the crisis on American families, business owners, and investors helps prevent personal and institutional memories from fading. And the potential for memories to fade is real.
The MPC’s central estimate that QE had a total peak impact on GDP of around 2.5% in 2013 implies that adjusted Bank Rate fell below 0.5% during the depths of the crisis. In the May 2014 Inflation Report the MPC judged that maintaining the stock of asset purchases at £ would provide continued, albeit declining support to activity implying that adjusted Bank Rate is still currently below 0.5%. BIS central bankers’ speeches  5  natural rate of interest will not rise to pre-crisis levels which is why we believe increases in Bank rate will be both gradual and limited. Moves in financial markets may also be signalling nervousness in the slow healing story. Financial markets drifted down in the second half of 2015 and they fell quite sharply in the first months of this year. Some of these moves have recovered a bit in the last week or so. But nevertheless current market signals seem to be suggesting a structurally weaker economic picture. UK 10-year real yields are negative. And yield curves are flat as far as the eye can see – the 5-year point on the UK forward market interest rate curve has fallen by around 0.8 percentage points to 1% in the last month.8 It is difficult to identify any really major economic news in 2016 that might underlie this. Rather it may be that markets are shifting to a new perception of the world economy and risks, and of policy-makers’ ability to respond to future challenges.