federalreserve. gov / publications / files / 202305 - supervision - andregulation - report. pdf. - 9let me turn to supervision of a specific risk : commercial real estate ( cre ). the reduced demand for office space and higher interest rates have put pressure on some cre valuations, particularly in the office sector. supervisors have been closely focused on banks ’ cre lending in several ways : how banks are measuring their risk and monitoring the risk, what steps they have taken to mitigate the risk of losses on cre loans, how they are reporting their risk to their directors and senior management, and whether they are provisioning appropriately and have sufficient capital to buffer against potential future cre loan losses. stepping back, because of the heightened risk environment and heightened supervisory attention, the federal reserve has issued more supervisory findings and downgraded firms ’ supervisory ratings at a higher rate in the past year. in addition, we have increased our issuance of enforcement actions. these actions do not represent a change in policy ; they reflect the impact of the changing economic, interest rate, and financial environment on a bank ’ s financial resources. we want and expect supervisors to help banks focus adequate attention on the areas that matter most for the particular bank, whether that is interest rate risk, cre, or cybersecurity vulnerabilities, to name a few. as noted in the svb report, we continue to evaluate whether we should temporarily require additional capital or liquidity beyond regulatory requirements where the firm has trouble in managing its risks. higher capital or liquidity requirements can serve as an important safeguard until risk controls improve, and they can focus management ’ s attention on the most critical issues. other supervisors use these types of - 10 tools, and we can draw from these experiences as we consider what may be appropriate for our supervised banks. 10 improving the agility of supervision another area of focus has been to improve the agility of supervision. supervisors must be able to make judgments on a forward - looking basis built on imperfect information, while remaining fair, evidence - based, and consistent. in the case of svb, supervisors delayed action to gather more evidence even as weaknesses were growing. this delay meant svb ’ s problems persisted past the time when it had options to address them, and those problems got worse. drawing from this experience, we have been looking to enhance our supervisory programs so that we correctly balance a strong process with the need to act based on

have a damping influence on capital spending, and in fact business confidence has moved down since the start of the year. however, order books for capital goods such as industrial machinery and other types of heavy equipment appear to be full and should support nearterm investment gains. moreover, the demand for information technology equipment is also likely to be well maintained, in part because of the recent introduction of a new generation of microprocessing chips and more - efficient large servers. current financial conditions also are supportive of business spending. corporate balance sheets are strong and flush with cash, and broad stock price indexes are up more than 10 percent so far this year. at the same time, yield spreads on corporate bonds across the ratings spectrum have been low, supported by the strong balance sheets and robust profit growth. inflation the picture painted here is one of an economy that has been growing solidly, albeit at a rate below its potential. what are the implications of this picture for inflation prospects? consumer prices excluding food and energy have accelerated over the past year, and this clearly is a concern. the core inflation rate rose 2. 4 percent over the most recent four quarters, up from 2. 0 percent for the same period a year ago. in thinking about the macroeconomic consequences of inflation, it makes sense to abstract from the prices of energy and food when the focus is on the short run. temporary shocks to food and energy prices typically don ’ t translate into changes in inflationary pressure. however, if these shocks persist, they may have an effect on core inflation and, more generally, on the economic behavior of households and businesses. core inflation can be affected when the price changes are propagated along the production chain - say from oil prices to the prices of chemicals and ultimately to the prices of goods made with those chemicals. in addition, the shocks to food and energy prices may affect inflation expectations. thus, we also pay attention to broader measures of inflation. nonetheless, the scene appears to be set for a deceleration in prices over time. one contributing factor is likely to be the slowing in activity i already discussed, which should ease the overall pressure on resources. another important factor affecting the inflation outlook is household and business expectations for inflation. as best we can judge, inflation expectations appear to be well contained : measures of longer - term inflation expectations, based on surveys and on a comparison of yields on nominal and inflation - indexed government debt, have remained within the ranges in which they have fluctuated in