than expected a few months back, it appears that the annual rate of core inflation2 has peaked and we expect it to begin to decline later this year. 3 finally, inflation expectations, which play an important role in the inflation process, remain well anchored. by this i mean that people expect that the rate of inflation will continue to be relatively low for some time to come. regional economic conditions so how is the recovery proceeding in the state and the region? as i mentioned, the new york fed produces indexes that help us track economic activity in the region. based on these measures, the economic recovery got underway in both new york state and new york city in late 2009, and economic activity has continued to expand through early 2012. the new york fed also conducts the monthly empire state manufacturing survey to monitor conditions for regional manufacturers. the most recent survey, for which a number of long island firms participated, points to continued expansion in manufacturing activity throughout the first quarter of 2012 and heightened optimism about the general business outlook. recently released employment revisions indicate that the economic recovery has taken hold on long island. but there still is a long way to go. employment on the island declined by a little over 4 percent in the downturn – a steep drop, to be sure, but only about two - thirds of the decline that occurred nationally. since bottoming out in late 2009, employment here on the island has rebounded by almost 2 1 / 2 percent. so we ’ ve come a bit more than halfway back to the early 2008 peak. moreover, these job gains have come despite ongoing job cuts in local government. while other parts of the region sustained job losses in local government starting in 2010, long island ’ s just started in the spring of last year, creating a drag on the labor market overall. nevertheless, the private sector has picked up the slack. this is most pronounced in professional and business services, finance, leisure and hospitality, and health care. even the island ’ s manufacturing sector has added jobs over the past year. another sign that a recovery is taking hold on long island is that banks that were created just before or just after the financial crisis – while only a small portion of the local market – are starting to show signs of growth. long island ’ s labor market has also been aided by its proximity to new york city. with a large portion of the island ’ s workforce commuting to new york city, especially from nassau county, the brisk job creation we ’ ve seen in the

consumer price inflation has slowed in recent months, and despite the recent rise of gasoline prices, we expect inflation to moderate further in 2012. looking ahead, the key challenge for the long island economy will be to continue to prepare its residents for the best jobs being created here. expanding educational access and opportunity and the skills that go along with it will go a long way to broadening participation in the economy to all residents and bolstering long island in the future. thank you for your kind attention. i would be happy to take a few questions. for more information, see the new york fed ’ s consumer credit panel. bis central bankers ’ speeches