William C Dudley: Panel remarks at the Bank for International Settlements' Annual General Meeting Panel remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Bank for International Settlements' Annual General Meeting, Basel, 25 June 2017. * * * John Clark, Gerard Dages, Linda Goldberg, Eric LeSueur, Jonathan McCarthy, and Joseph Tracy assisted in preparing these remarks. Let me start by thanking Jens Weidmann and the Bank for International Settlements for the opportunity to respond and comment on Professor Hélène Rey’s thoughtful remarks and on the issue of international spillovers associated with U.S. monetary policy. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System.1 As is characteristic of her work, what Hélène has to say is well-argued and provocative. It is also very relevant to the conduct of monetary policy and the functioning of the international monetary system. I mostly agree with the major points she makes. First, I wholeheartedly agree with her on the hazards of financial booms. Rapid increases in credit and capital flows, asset prices, and leverage can lead to potentially severe corrections that can impose great stress on financial systems. As we have seen repeatedly, this stress can impair the ability of the financial system to perform well in intermediating credit between savers and borrowers, and in helping households and businesses manage their financial risks.
This was another step in a long chain of communications about the balance sheet —incremental steps that highlight the evolution of our communication practices. I hope you would agree that we have taken a very measured and careful approach. This process started with the initial release of the Policy Normalization Principles and Plans in September 2014, which indicated that the FOMC planned to reduce securities in a gradual and predictable manner. Related comments followed in the minutes of the July 2015 FOMC meeting and the December 2015 FOMC statement. Subsequently, FOMC participants discussed potential long-run frameworks for monetary policy implementation as detailed in the November 2016 FOMC minutes. Next, the March 2017 FOMC minutes reaffirmed that a change in balance sheet policy would be gradual and predictable, and achieved primarily by changing the reinvestment policy. These minutes also noted that most participants judged a change in reinvestment policy would likely be appropriate this year, should economic data develop as they expected. Then, in the May 2017 minutes, it was noted that nearly all participants had a favorable view of a phased-in, cap approach whereby reinvestments would be decreased gradually. Participants favored this 2/4  BIS central bankers' speeches  strategy because a preannounced schedule would be gradual and predictable, limiting the magnitude of the runoff could help mitigate any adverse market effects, and the strategy would be relatively easy and straightforward to communicate.