2023
President's Letter
My first year as president of the Federal Reserve Bank of Chicago was extraordinary for me personally, but also for the economy. I am honored to belong to an organization devoted to serving the public and am grateful for all the support people have given me as we pursue our mission: promoting a healthy economy and stable financial system in which all have an opportunity to thrive.
The Economy
The Federal Reserve conducts monetary policy to achieve our congressionally mandated goals of stable prices and maximum employment. We entered 2023 with solid growth and strong labor markets, but persistent high inflation. In that situation, the Federal Open Market Committee’s (FOMC) focus continued to be getting inflation back down to our goal of 2 percent. In 2022, over a relatively short period, the FOMC rapidly increased the federal funds rate range and steadily reduced the size of the Fed’s balance sheet. Coming into 2023, most analysts expected activity to slow considerably, if not fall into recession as the effects of restrictive monetary policy worked their way through the economy. In the first half of 2023, the FOMC slowed the pace of rate increases, pausing in the spring to gauge the implications of financial market stress from bank failures before resuming. The funds rate range remained at 5-1/4 to 5-1/2 percent from July through the end of the year while balance sheet reductions continued uninterrupted.
The combined impact of restrictive policy, further healing of pandemic-related supply chain disruptions, increased labor force participation, and the Fed’s clear commitment to achieving our dual mandate objectives contributed to significant, faster-than-expected progress on inflation in 2023: Total 12-month inflation as measured by the Price Index for Personal Consumption Expenditures (PCE) stood at 5-1/2 percent in January 2023, but ended the year at just over 2-1/2 percent. This rapid decline in inflation rivals that of the early 1980s for the largest single-year drop in the modern history of the Fed.
And yet, unlike that earlier episode, the recent drop in inflation occurred without a weakening in activity. Indeed, despite a host of challenges—including continued workforce shortages, strikes, salient bank failures, conflict abroad, and the threat of a government shutdown—growth for the year was quite strong, at 3.1 percent, reflecting some of the same positive supply-side developments that helped reduce inflation. The labor market also stayed strong, and the unemployment rate remained low, ending the year at just 3.7 percent.
In sum, in 2023 the economy made great progress along a “golden path” of substantial reduction in inflation without a major recession. The job is not done, however. In 2024 the Fed must remain vigilant to ensure we are on a sustained path to our 2 percent inflation target while also fulfilling the maximum employment leg of our dual mandate.
At the Federal Reserve Bank of Chicago
Some of the highlights of the year included our support of the launch of FedNow, a new system for instant payments that holds significant promise for individuals and businesses and represents a landmark development in our longstanding role as a payments operator. The Chicago Fed was selected as the home of the new Credit Risk Management Support Office, which provides support to the entire Federal Reserve System on critical services, including the discount window and the emergency lending program created in March 2023 to address stress in the banking system.
We prioritized our visibility to the regions and communities that we serve, at all levels and in all corners of our five-state district. This is essential for people to understand the work of the bank and to enhance the Fed’s understanding of how people are experiencing the economy. I visited all five states, some of them more than once, to listen and learn. My travels included getting a close-up look at an RV manufacturer in Elkhart, Indiana, learning about the agriculture sector in Mitchellville, Iowa, and seeing firsthand how Green Bay, Wisconsin, is leveraging the Packers and Lambeau Field to grow the local economy. My own travels paled in comparison with those of our team of economists and experts: They visited over 20 different cities and held numerous regional roundtables and events that reached thousands of people. Back here in Chicago, we reopened the Money Museum and welcomed more than 42,500 visitors to learn more about economics, currency, and the Chicago Fed’s roles and responsibilities.
Promoting a Trusted Financial System
Supervision and Regulation
In 2023 the Chicago Fed focused on the continued safety and soundness of more than 750 supervised banks and financial institutions. Supervision and Regulation (S&R) teams worked to strengthen the Bank’s ability to efficiently and effectively recognize signs of financial instability—efforts that escalated in March 2023 as S&R acted quickly to mitigate any local impacts from bank failures beyond our District.
As part of the effort to tackle emerging challenges, S&R leaders created a pilot program to develop examiners’ advanced cybersecurity skills. Having a local team with cybersecurity resources helped ensure adequate skill and knowledge was available to banks in the Seventh District.
Additionally, the Chicago Fed supported the development of the revised Community Reinvestment Act (CRA), which was finalized in October 2023, and prepared for implementation of new processes as a result. The CRA encourages financial institutions to help meet the credit needs of the entire communities in which they do business, with a focus on low- and moderate-income communities.
Financial Services, Payments, and Cash Services
For Federal Reserve Financial Services (FRFS), 2023 marked the launch of the FedNow Service, an instant retail payments service. FRFS Chicago supported the Federal Reserve System’s public launch of FedNow in July and hosted road show events with bankers coast to coast. As of year-end, just under 400 banks and the U.S. Treasury have signed up for FedNow, surpassing established goals. In October, the Bank hosted the 23rd annual Chicago Payments Symposium. More than 160 leaders, with another 100 virtual attendees, joined in discussion and debate on a range of topics around this year's Symposium theme, Accelerating Innovation and Inclusion in Payment Networks.
Additionally, the Chicago Fed was selected to lead the new Credit Risk Management Support Office (CRMSO). In 2023, the office was instrumental in preparing the Federal Reserve Banks for the Bank Term Funding Program, a new emergency lending facility created in March 2023 to meet funding needs amid banking industry turmoil. CRMSO was critical to this work and continues to promote getting banks signed up and prepared to use the discount window in support of a safe banking system.
Because of strong relationships with armored carriers and depository institutions in the Seventh District, the Chicago Fed Cash Services Department became one of four across the System piloting the new E-Manifest process, which enables financial institutions and armored carriers to electronically process currency deposited or ordered as well as share and receive information in real-time. The new E-Manifest process involves less paper, improves efficiency, and reduces risk.
Advancing a Healthy, Inclusive Economy
Regional Engagement
In 2023 the Chicago Fed’s Regional Analysis and Community Development group evolved to better position its teams to advance a healthy, inclusive economy across the Seventh District. Out of that effort came a year of building deeper connections with people, businesses, and communities in the region and generating thoughtful, rigorous research and analysis.
The Chicago Fed worked hard in 2023 to bring community and business perspectives to the monetary policy process. A robust network of local connections—including community listening sessions in Detroit, Indianapolis, and Merrillville, IN; more than 75 calls with low- and moderate-income community contacts; 36 economic roundtables; and two meetings of the Chicago Fed’s Advisory Council on Small Business, Community and Economic Development, Agriculture and Labor—contributed to the Bank’s eight Beige Book submissions and President Goolsbee’s monetary policy preparation.
Connecting with people across the Seventh District is a key part of the Chicago Fed’s mission, and Regional and Community team members delivered over 130 public speeches and lectures in 2023, including the keynote address at the Indiana Prosperity Summit. The Bank helped arrange Federal Reserve Governor Lisa Cook’s visit to Grand Rapids, MI, and hosted Federal Reserve Governor Michelle Bowman for a discussion with a recent Chicago Public Schools graduate and community leaders on youth transitions into the workforce post-pandemic. The team also supported President Goolsbee’s goal of visiting each state in the District during his first year, organizing trips to Elkhart, IN, Green Bay, WI, and Des Moines, IA, among others. During these visits, President Goolsbee’s focus was on economic opportunities and challenges facing communities in the heart of the Midwest. The visit to Green Bay plus a new collaboration with Chicago’s Joyce Foundation furthered the Bank’s work on exploring funding strategies for lead service line replacement.
Economic Research
The Chicago Fed’s Economic Research Department produced original and leading research throughout the year, publishing 24 articles in peer-reviewed economic journals and sharing insightful articles and working papers with the public. Department staff examined topics that included discrimination in the auto lending market, bank branch access, the impact of monetary policy on the stock market, and differences in inflation within the Midwest. Economic Research staff also published five regularly updated data releases and surveys, and Bank policy professionals and economists monitored and analyzed major events that had an impact on the Midwest economy, such as the Community Reinvestment Act update and the United Auto Workers strike. The Bank hosted more than 30 webinars and conferences, including the Automotive Insights Symposium, the State of Southeast Michigan Real Estate and Development Conference, and the Midwest Agriculture Conference.
Striving for Excellence
People and Culture
In 2023 the Chicago Fed continued to foster an inclusive and equitable culture designed to allow all employees to thrive.
Employee Support Network Groups held over 60 events, including a Veterans Day celebration, a Business Leaders of Color panel, and participation in the Chicago Pride Parade. The Bank also launched a new social impact tool that empowers employees to contribute to their community, helping to facilitate 37 volunteer events and 16 fundraisers in 2023. Internal efforts, such as a revamped family leave policy and a successful executive mentoring program, contributed to the Chicago Fed being recognized by the Human Rights Campaign’s Corporate Equality Index and by Diversity MBA’s 2023 list of Best Places to Work for Women and Diverse Managers.
In addition, the Bank continued to create opportunities for a diverse array of businesses and early-career professionals. In 2023, the Chicago Fed hosted its largest-ever cohort of Year Up Chicago students (13 in total), and the Supplier Diversity Program provided targeted education initiatives for 500 small business owners.
Digital Transformation
The Chicago Fed became more efficient, secure, and agile in 2023. Information Technology and Innovation teams worked with business areas across the Bank to identify places where thoughtful, secure technology solutions could save time and improve processes. This resulted in significant workflow improvements in several departments. Information Technology and the Information Security Department also implemented a new technology to accelerate the Bank’s cloud migration project without sacrificing security and introduced a new training program dedicated to cloud skills development.
Facilities
At over 100 years old, the Chicago Fed building on La Salle Street remains a historical icon for the Federal Reserve System and a frequented destination for the community. As an organization, the Bank continually balances the integrity of this landmark facility with the evolving needs of a contemporary workforce. In 2023, Administrative Services made progress on workspace modernization efforts to enable a collaborative culture within a new hybrid work model, completed an energy-efficient building-wide automation upgrade, and introduced a modern training suite which improved experiential training capability for the Bank’s Law Enforcement Unit.
Board of Directors
In 2023, the Bank welcomed Maurice Smith, president and CEO of Health Care Service Corporation, to the Chicago Board by appointment of the Federal Reserve Board of Governors. Additionally, JoAnn Chávez, senior vice president and chief legal officer at DTE Energy, was appointed to the Detroit Board in 2023. A full list of members and their terms is below.
Chicago Board of Directors
Detroit Board of Directors
Auditor Independence
The Federal Reserve Board engaged KPMG to audit the 2023 combined and individual financial statements of the Reserve Banks and the financial statements of the three limited liability companies (LLCs) that are associated with the Board of Governors’ actions to address the coronavirus pandemic, of which two LLCs are consolidated in the statements of the Federal Reserve Bank of New York and one LLC is consolidated in the statements of the Federal Reserve Bank of Boston.1
In 2023, KPMG also conducted audits of internal controls over financial reporting for each of the Reserve Banks. Fees for KPMG services totaled $9.2 million, of which approximately $0.7 million were for the audits of the LLCs.2 To ensure auditor independence, the Board of Governors requires that KPMG be independent in all matters relating to the audits. Specifically, KPMG may not perform services for the Reserve Banks or affiliated entities that would place it in a position of auditing its own work, making management decisions on behalf of the Reserve Banks, or in any other way impairing its audit independence. In 2023, the Bank did not engage KPMG for any non-audit services.
1 In addition, KPMG audited the Retirement Plan for Employees of the Federal Reserve System (System Plan) and the Thrift Plan for Employees of the Federal Reserve System (Thrift Plan). The System Plan and the Thrift Plan provide retirement benefits to employees of the Board, the Federal Reserve Banks, and the Consumer Financial Protection Bureau.
2 Each LLC will reimburse the Board of Governors for the fees related to the audit of its financial statements from the entity’s available assets.
