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2017 Annual Report President’s Letter Welcome to the Federal Reserve Bank of Chicago annual report. 2017 was a very productive year for the Bank. Listed below are a handful of accomplishments, and I invite you to review them. First, let’s turn to the national economy. The primary task of monetary policy is to help achieve maximum sustainable employment and keep inflation near our target of 2 percent in a symmetric fashion. I am encouraged by last year’s progress. Growth was solid, with real gross domestic product (GDP) rising 2.5 percent for the year, and the current 4.1 percent unemployment rate is even a bit lower than what we think of as full employment. Inflation, which has been too low for several years, is making progress back towards our objective; however, I think we still have some work to do before the likelihood of inflation running modestly above or modestly below 2 percent is in balance – something we must see before we can say we have achieved our symmetric inflation objective. I would be remiss if I did not mention the departure earlier this year of Federal Reserve Chair Janet Yellen. Janet contributed greatly to the Federal Reserve and the nation during her 16 years of service. We will miss her keen intellect and thoughtful insights into the economy, monetary policy and public policy. Fortunately, we are in excellent hands with our new chair, Jay Powell. He brings impressive experience and knowledge to the position, having served on the Fed’s policy-setting Board of Governors since 2012. I am delighted to continue working with him. Charles L. Evans President and Chief Executive Officer April 17, 2018 2017 Annual Report 1 Conducting Original Research Chicago Fed research economists had 26 articles published in leading peer-reviewed journals. Financial economist Brian Melzer (above) earned special recognition from the Journal of Finance for “Mortgage Debt Overhang: Reduced Investment by Homeowners at Risk of Default” (Amundi Smith Breeden Distinguished Paper Prize) and “Retail Financial Advice: Does One Size Fit All?” (Brattle Group Distinguished Paper Prize). Providing Vigilant Oversight Regulatory staffers conducted roughly 1,000 exams or reviews of more than 650 financial institutions. Connecting Policymakers A multidisciplinary team developed the Peer Cities Identification Tool, which helps government officials, community and economic development practitioners, bankers, researchers, and others easily compare municipalities’ economic, demographic and labor characteristics. 2017 Annual Report 2 Fostering Innovation New Innovation Center created to promote collaboration and creative thinking. The 5,500-square-foot space features mobile furniture, abundant writing and drawing surfaces, and innovative wireless technology. It also offers work areas ranging from single-person pods to collaboration rooms. Converting to FedCash Central Chicago and Detroit Cash offices successfully converted to FedCash Central, the core transaction-processing and inventory-management system for currency and coin. Promoting Faster Payments The Fed’s Customer Relations and Support Office, headquartered at the Federal Reserve Bank of Chicago, brought together payment system stakeholders to create a paper identifying nine new tactics the Fed will pursue to help improve the speed, safety and efficiency of the U.S. payment system. 2017 Annual Report 3 2017 Chicago Board of Directors Former Federal Reserve Chair Janet Yellen (center) visited the Chicago Fed in June of 2017 and is pictured here with (left to right): Connors, Nelda J. Class B Director, Term: 2011; 2012-2014; 2015-2017 Nelms, David W. Class A Director, Term: 2015-2017; 2018-2020 Collins, Susan M. Class B Director, Term: 2016-2018 Santi, E. Scott Class C Director, Deputy Chair, Term: 20162017; 2018-2020 Pramaggiore, Anne R. Class C Director, Chair, Term: 2014-2016; 2017-2019 Evans, Charles President and Chief Executive Officer, Federal Reserve Bank of Chicago Bromagen, Ellen First Vice President and Chief Operating Officer, Federal Reserve Bank of Chicago Brown, Greg Class C Director, Term: 2013-2015; 2016-2018 Tubbs, Abram A. Class A Director, Term: 2014-2016; 2017-2019 Farrow III, William M. Class A Director, Term: 2013-2015; 2016-2018. Not pictured is: Ramirez, Jorge Class B Director, Term: 2013; 2014-2016; 2017-2019 2017 Detroit Board of Directors Joseph B. Anderson, Jr., Term: 2016; 2017-2019 Sandy K. Baruah, Term: 2017; 2018-2020 Linda P. Hubbard, Term: 2017-2019 Sandra E. Pierce, Term: 2016-2017; 2018-2020 Rip Rapson, Term: 2016-2018 Michael L. Seneski, Chair, Term: 20152017; 20182019 2017 Annual Report Wright L. Lassiter III, 2016-2018 4 Financial Statements Auditor Independence The Federal Reserve Board engaged KPMG to audit the 2017 combined and individual financial statements of the Reserve Banks. 1 In 2017, KPMG also conducted audits of internal controls over financial reporting for each of the Reserve Banks. Fees for KPMG services totaled $6.8 million. 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 others 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 2017, the Bank did not engage KPMG for any non-audit services. The Federal Reserve Bank of Chicago — Financial Statements as of and for the Years Ended December 31, 2017 and 2016, Management’s Report on Internal Control Over Financial Reporting, and Independent Auditors’ Report In addition, KPMG audited the Office of Employee Benefits of the Federal Reserve System (OEB), 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, the OEB and the Consumer Financial Protection Bureau. 1 Photo Credits: Ping Homeric/Federal Reserve Bank of Chicago; Mark Joseph/Mark Joseph Photography; Victor Powell/Powell Photography. 2017 Annual Report 5
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