The provision of liquidity had the desired effect of reducing strains in markets, narrowing the dispersion of rates, and keeping the federal funds rate within the target range.5 Moving to more recent events, in March of this year the global spread of the pandemic led to a rapid and massive movement of funds around the world as investors sought to protect themselves from the highly uncertain and darkening economic outlook. These flows threatened to overwhelm the financial system and resulted in intense strain and disruption in short-term funding markets and markets for Treasury securities and agency mortgage-backed securities.6 Measures of market functioning deteriorated to levels near, or in some cases worse than, those we saw at the peak of the 2008 global financial crisis.7 In response to the extraordinary volatility and signs of market disruption caused by the pandemic, the Federal Reserve greatly expanded its repo operations and decisively and immediately began purchasing enormous quantities of U.S. Treasury securities and agency mortgage-backed securities. Our approach was to deliver a rapid and overwhelming response that would give assurance to market participants that liquidity would be there in the coming days and months. These actions, combined with the introduction of emergency lending facilities to provide liquidity to funding and credit markets, proved successful.
As a result our trade balance with the rest of the world has deteriorated – by some 1¼% of total GDP between 1997 and 1998; employment in manufacturing has fallen by around 2% since the beginning of last year; and business confidence fell sharply to levels last seen in the depths of recession – until it stabilised following interest rate cuts in the autumn, albeit to levels which are almost twice as high as those in the Eurozone. Now you could be forgiven if you thought that all that was me describing the UK economy to an audience in Birmingham, England. In fact it is what my counterpart, Alan Greenspan, might well have said if he were addressing his fellow Americans this evening in Birmingham, Alabama, on the ‘Goldilocks’ economy of the United States! I tease you in this way to make  1  BIS Review 56/1999  the serious point that we are not alone in facing substantial imbalance within an economy that is performing reasonably well in overall terms. In the case of the United Kingdom – and I’m being serious now – the facts are that the economy as a whole has grown consistently for 27 consecutive quarters – though I admit that during the last six months it was a ‘damned close run thing’ – at an average annual rate of 2.9%, which is well above its long-term trend rate of around 2¼%.