to their pre - pandemic pace, as supply bottlenecks have eased. outside of housing, core services inflation is also close to its pre - pandemic pace. housing services inflation continues to decline, but sluggishly. the growth rate in rents charged to new tenants remains low. as long as that remains the case, housing services inflation will continue to decline. 1 / 2 bis - central bankers'speeches broader economic conditions also set the table for further disinflation. the labor market is now roughly in balance. longer - run inflation expectations remain well anchored. monetary policy over the past year, we have continued to see solid growth and healthy gains in the labor force and productivity. our goal all along has been to restore price stability without the kind of painful rise in unemployment that has frequently accompanied efforts to bring down high inflation. that would be a highly desirable result for the communities, families, and businesses we serve. while the task is not complete, we have made a good deal of progress toward that outcome. for much of the past three years, inflation ran well above our goal, and the labor market was extremely tight. appropriately, our focus was on bringing down inflation. by keeping monetary policy restrictive, we helped restore the balance between overall supply and demand in the economy. that patient approach has paid dividends : inflation is now much closer to our 2 percent objective. today, we see the risks to achieving our employment and inflation goals as roughly in balance. our policy rate had been at a two - decade high since the july 2023 meeting. at the time of that meeting, core inflation was above 4 percent, well above our target, and unemployment was 3. 5 percent, near a 50 - year low. in the 14 months since, inflation has moved down, and unemployment has moved up, in both cases significantly. it was time for a recalibration of our policy stance to reflect progress toward our goals as well as the changed balance of risks. as i mentioned, our decision to reduce our policy rate by 50 basis points reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate economic growth and inflation moving sustainably down to 2 percent. looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance. but we are not on any preset course. the risks are two - sided, and we will

hire additional workers, and employment would return to its normal level. an attempt to stimulate the economy by choosing a permanently higher level of inflation could thus not succeed, according to this analysis ; such an attempt would leave the economy with higher inflation but a level of employment no different than it would have been otherwise. this work was both brilliant and prescient. in particular, among the seminal contributions of the friedman and phelps analyses was the identification of the key role of inflation expectations in determining the behavior of the economy, a point that remains central to our thinking today. moreover, the performance of the u. s. economy soon bore out the predictions made by friedman and phelps. the inflationary policies of the 1960s led not to permanently lower unemployment, as the phillips'work actually focused on wage inflation rather than price inflation ; subsequent work emphasized the latter. permanent - tradeoff theory predicted, but instead to persistently higher inflation with no improvement in unemployment. for example, in the 1970s, core inflation averaged 6 percent, compared with 21 / 4 percent in the 1960s, and unemployment in the 1970s averaged 6 - 1 / 4 percent, compared with the 4 - 3 / 4 percent rate in the 1960s. the volatility of output and ( especially ) inflation both increased, as the fed struggled to contain inflation expectations. other factors, including the aforementioned surge in oil prices, played a role in the deterioration of economic performance in the 1970s. clearly, though, the theory that a long - run tradeoff exists between inflation and unemployment had sprung a serious leak. despite a growing recognition that higher inflation provided no labor - market benefits, there was, until the end of the 1970s, little appetite for taking the actions necessary to reduce inflation. for one thing, economists and policymakers recognized that reversing the rise in inflation expectations that had occurred during the 1970s could take time and that, during the process, the nation could suffer ultimately transitory but still - serious increases in unemployment. furthermore, at the time, it was widely believed among economists that any stable level of inflation would be as good as another. although the efficiency costs associated with high inflation were acknowledged, the costs were thought to be associated mostly with changes in the underlying rate of inflation - - particularly unexpected changes. in addition, many economists argued that the efficiency costs of inflation were not particularly large. 5 milton friedman once again was in the vanguard on this issue. in his 1977 nobel prize address, friedman laid out the modern argument - - that, because