Here, the emphasis should be on ensuring that these financial market utilities can open for business the day after the failure of one or more of their participants. Credible resolution regimes for large banks and securities firms—and credible recovery regimes for CCPs and other critical financial market utilities—should help support confidence during times of stress. These measures would make the financial system less prone to booms and busts. Financial intermediaries would be more robust to stress when busts inevitably occur, and contagion to the broader system would be reduced when a systemically important firm fails. Such changes should reduce the likelihood of the failure of a large, systemically important firm and the negative consequences of such a failure on the broader financial system. These steps should help to ensure that credit flows can be sustained throughout the business cycle. Considerable progress So, where are we relative to what is needed? As I see it, there has been considerable progress. The nation’s largest banks are much safer as a result of substantially higher capital and liquidity requirements, as well as robust stress tests. This enhanced resiliency has been achieved without a significant negative impact on the broad availability of credit—recognizing that it is now more difficult for households with low credit scores to obtain a mortgage. Most importantly, improving the capacity of such firms to continue to lend during times of stress should make the overall economy more stable. We have also made significant progress in addressing many of the structural weaknesses uncovered by the financial crisis.

To better understand how that happened and what it portends, it is useful to think of inflation in terms of three distinct layers of an onion. In this analogy, the onion's outer layer consists of prices of globally traded commoditiessuch as lumber, steel, grains, and oil. They have experienced a surge in demand as the global economy has rebounded from the pandemic downturn. In addition, Russia's war on Ukraine and the resulting actions have caused energy prices to soar. These higher costs get passed on as higher prices for consumers. I am sure everyone in this room has been forced to manage skyrocketing costs on important supplies over the past two years. The middle layer of the inflation onion is made up of products-especially durable goods like appliances, furniture, and autos-that have been affected by severe supply-chain disruptions. Many of you have also had first-hand experience with the impact of shutdowns and supply-chain bottlenecks. There haven't been enough inputs to produce products, and not enough products to sell-all at a time when demand has been skyhigh. Many of you have also had customers lining up at your doors-but not enough products in stock. This imbalance between supply and demand has contributed to large price increases. To give some examples, prices for furniture rose over 13 percent last year, new cars were up nearly 12 percent, and used vehicles skyrocketed an astounding 50 percent. The innermost layer of the onion consists of underlying inflation, which reflects the overall balance between supply and demand in the economy.