This forecast is premised on a market yield curve in which interest rates rise gradually though to levels substantially below their pre-crisis average. The forecast recognises the risks to this picture from another unfortunate event in the form of a harder landing in emerging markets.6 Secular signals? But while one can still explain the current conjuncture this way, there must be less confidence in the healing story than when I first arrived on the MPC. We have already incorporated a weaker structural picture into our thinking. A few years ago we were expecting a period of above trend productivity growth to recover some of the productivity growth lost during the Great Recession. We no longer expect any catch-up of the lost productivity growth and indeed, productivity growth in our latest forecast only recovers to 1.8%, compared to 2.7% between 1950–2007 and 2.2% in the decade before the crisis. This downgrading of prospects is true more broadly – according to the IMF, potential output growth in advanced economies fell from 2.2% over the period 2001–07 to 1.5% over 2013–14. And the natural rate of interest probably remains around, or a touch below, zero. This is the unobservable underlying real interest rate that is consistent with inflation at target and economic activity at its potential. One cannot observe this “natural rate” directly; it has to be estimated and that is difficult to do with precision.
Richard Dzina: Luncheon remarks at the Community Bankers Conference Remarks by Mr Richard Dzina, Executive Vice President of the Financial Services Group of the Federal Reserve Bank of New York, at the Community Bankers Conference, Federal Reserve Bank of New York, New York City, 18 April 2018. * * * Good afternoon. I am conscious that I am the concluding speaker for today’s conference, a line usually followed by “and the only thing that separates you from the bar.” In this case, I’m the only thing that separates you from the gold vault, which may be even more compelling, so I’ll keep things brief, but hopefully meaningful. Allow me to share two preliminary comments as prelude to formal remarks: First, convening this conference underscores for me and my colleagues that fulfillment of Federal Reserve mandates in monetary policy, supervision, and financial services does not constitute an end to itself, but a means to an end. The end is to foster conditions and to provide services that support robust and sustainable economic activity on which our nation depends and in which community banks play an integral, indeed indispensable, role. May those of us who have the privilege of serving this great institution, and working within these walls, never forget the ultimate object of our mandate, at which you sit at the center. Second, my perspective in addressing you today is not as overseer, or as policy maker, but as head of Financial Services at the Federal Reserve Bank of New York.