On Wednesday, November 17, New York Fed President John Williams spoke at the 2021 U.S. Treasury Market Conference, co-hosted by the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission.
“Resilience is the imperative of all markets — and that is especially true in the Treasury market because of its central role in the financial system.”
“What we’ve learned during crises is that when the flow of credit to the economy is at stake, we must act quickly and decisively.”
“It’s essential that we all continue to work together to increase the resilience of the Treasury market.”
In his remarks, President Williams said it was important to study the past to prepare for the future. In looking at recent, notable market disruptions, he said two lessons are clear. “First, the unforeseeable and unpredictable will happen,” which can cause significant stresses in the Treasury market and related markets. “Second, when disruptions have been sufficiently severe and persistent, the market has not been able to quickly self-correct without official-sector intervention.”
President Williams pointed to the severe disruptions at the start of the COVID-19 pandemic as an example. The quick, decisive steps taken by the Federal Reserve, along with measures enacted by Congress and others, “averted what could have been a severe financial crisis that would have had devastating effects on the economy,” he said. “But they are also a stark reminder that these markets are not nearly as resilient as they should be.”
Many experts, including the Inter-Agency Working Group for Treasury Market Surveillance (IAWG), have proposed principles to guide public policy in Treasury market reform. “I think it’s safe to say that strengthening resilience is at the top of everyone’s Treasury reform list,” President Williams said.
President Williams said it’s “essential that we all work together to increase the resilience of the Treasury market.” In doing so, he added that it’s important not to “start from a position of how things are, but instead, how they should be. Let’s not think of how we can reform, but how we can design.”
“Let’s create a system that can better withstand the unforeseeable and the unpredictable,” he said.
President Williams concluded by saying, “Let’s work together to build a system that is truly resilient and can withstand the challenges of our time — and of the future.”
This article was originally published by the New York Fed on Medium.
The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.