Michael S Barr: On building a resilient regulatory framework

Speech by Mr Michael S Barr, Vice Chair for Supervision of the Board of Governors of the Federal Reserve System, at the Central Banking in the Post-Pandemic Financial System 28th Annual Financial Markets Conference, hosted by the Federal Reserve Bank of Atlanta, Fernandina Beach, Florida, 20 May 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Thank you for inviting me to speak today. As many of you know, I have two roles at the Federal Reserve-my role as a governor of the Board and member of the Federal Open Market Committee (FOMC), where I participate in developing and setting monetary policy, and my role as the Vice Chair for Supervision, where I oversee our supervision and regulation of the banking sector. In keeping with the interdisciplinary spirit of this conference, I'll touch upon these different roles, and how they both promote a healthy economy.

To start, I will share a couple of observations about the current stance of monetary policy. Then, I'll discuss the conceptual framework that underpins the key components of prudential bank regulations. As part of this discussion, I will also offer some observations about adjustments to our regulatory framework that we are exploring, including as a result of lessons learned from the bank stress in the spring of 2023.

Current Stance of Monetary Policy

Starting with recent economic developments, I see the performance of our economy as strong. Labor demand is being met with rising supply from both improved labor force participation and immigration. We have solid growth and low unemployment. The unemployment rate has been below 4 percent for 27 months, the longest stretch of unemployment that low in more than 50 years.

I am strongly committed to meeting the mandate that Congress has given us to achieve maximum employment and price stability. We are doing very well on the employment component of our mandate, and we have also made tremendous progress over the past two years on the inflation component. Inflation has fallen from its peak of 7.1 percent to 2.7 percent today. But we are not yet all the way to our target of 2 percent. As noted in the FOMC's statement following our meeting earlier this month, inflation readings in the first quarter of this year were disappointing. These results did not provide me with the increased confidence that I was hoping to find to support easing monetary policy by reducing the federal funds rate. This means that we will need to allow our restrictive policy some further time to continue to do its work. I think we are in a good position to hold steady and closely watch how conditions evolve. I remain vigilant to the risks to achieving both components of our mandate. I believe that the current approach is a prudent way to manage those risks.