##horts — as part of its report on bank supervision. 6 one concept that is inextricably linked to a supervisory rating is whether or not a firm is “ well managed. ” by law, in order to be well managed a firm must have at least a satisfactory management rating, if any is given by its supervisor, and a firm also must have at least a satisfactory overall or composite rating. when the gramm - leach - bliley act expanded the range of financial activities that were permissible for companies that own banks, such as securities underwriting and insurance underwriting, it did so with certain conditions. to elect to be a “ financial holding company ” and be eligible to engage in these types of expanded financial activities, a bank holding company and its lead depository institution subsidiary, among other things, must be and remain well - managed. 7 because of these significant consequences, i believe it is appropriate to take note of the process distinctions between the development of rules and the development of supervisory ratings. rules are drafted in full view of the public, subject to a comment period before they “ rfi ” ( risk management ( r ) ; financial condition ( f ) ; and impact ( i ) ) is the federal reserve ’ s rating system for all bank holding companies except for those subject to the lfi ( large financial institution ) rating system. board of governors of the federal reserve system, supervision and regulation report : november 2020 ( washington : board of governors, november 2020 ), https : / / www. federalreserve. gov / publications / files / 202011supervision - and - regulation - report. pdf. in addition, the company must be “ well capitalized ” under the federal reserve ’ s regulations and have at least a satisfactory rating for compliance with the community reinvestment act. to be well capitalized, the company must meet quantitative capital requirements that exceed the minimums. - 10 become final, and federal agencies have an obligation to provide a rationale for their rules. in contrast, supervisory ratings are confidential and have immediate effect. banks are not permitted to disclose them. although, as i have discussed, there are published standards as to how bank supervisors should assign these ratings, there will always be borderline cases and close calls, and these decisions are made out of the view of the public. there are at least two reasons why it is critical that we get ratings correct. the first is that the supervisory rating is the most important communication that we

growth continues. the hurricanes will likely result in some hit to gdp growth in the third quarter but a rebound thereafter, and smoothing through those movements, i ’ m expecting growth that continues to exceed potential in the second half of the year. the latest projections from fomc participants have a median of 21 / 2 percent gdp growth this year. growth of consumer spending has been supported by the ongoing job gains and relatively high levels of household wealth and consumer sentiment. business investment has strengthened this year following surprising weakness in 2016. the faster gains partly reflect an upturn in investment in the energy sector as oil prices have firmed. but the gains have been broader than that, and some measures of business sentiment remain quite strong. exports also have risen this year, as growth abroad has solidified and the exchange value of the dollar has declined somewhat. my fellow fomc participants and i perceive that risks to global growth have receded somewhat and expect growth to continue to improve over the near term. the biggest surprise in the u. s. economy this year has been inflation. earlier this year, the 12month change in the price index for personal consumption expenditures ( pce ) reached 2 percent, and core pce inflation reached 1. 9 percent. these readings seemed consistent with the view that inflation had been held down by both the sizable fall in oil prices and the 1 / 3 bis central bankers'speeches appreciation of the dollar starting around mid - 2014, and that these influences have diminished significantly by this year. accordingly, inflation seemed well on its way to the fomc ’ s 2 percent inflation objective on a sustainable basis. inflation readings over the past several months have been surprisingly soft, however, and the 12month change in core pce prices has fallen to 1. 3 percent. the recent softness seems to have been exaggerated by what look like one - off reductions in some categories of prices, especially a large decline in quality - adjusted prices for wireless telephone services. more generally, it is common to see movements in inflation of a few tenths of a percentage point that are hard to explain, and such “ surprises ” should not really be surprising. my best guess is that these soft readings will not persist, and with the ongoing strengthening of labor markets, i expect inflation to move higher next year. most of my colleagues on the fomc agree. in the latest summary of economic projections, my colleagues and i project inflation to move higher next year and to reach 2 percent by 2019. to