six to nine months it will stay down at these levels permanently. indeed, if our economy prospers, we should expect to see a gradual appreciation of the exchange rate over the long - term. perhaps farmers need to think about the exchange rate the way canterbury farmers think about rain. sooner or later, droughts are going to happen. consider what we call “ the real exchange rate ”. the real exchange rate is new zealand ’ s nominal exchange rate, adjusted by the difference between inflation in new zealand and inflation in our trading partners. this is more relevant to exporters than simply looking at the nominal exchange rate : clearly, if inflation within new zealand is markedly higher than that in our trading partners, even a falling exchange rate is of little help to exporters, while if our inflation is markedly lower than that in our trading partners, exporters can cope with an appreciating exchange rate. when the real exchange rate rises, or in other words when the nominal exchange rate rises by more than the difference between our inflation rate and that of our trading partners, exporters are put under real pressure. and vice versa. now have a look at graph 1. graph 1 nominal and ’ real ’ trade weighted exchange rate ( 1970 - march 1998 average equals 100 ) index index nominal twi foreign / domestic price level ’ real ’ exchange rate [UNK] the solid line is the nominal trade weighted index, in other words the nominal exchange rate. the dotted line shows the difference between inflation in new zealand and inflation in our trading partners. as you can see, over long periods of time, the nominal exchange rate tends to reflect the difference between our inflation rate and that of our trading partners : when our inflation was relatively high, our exchange rate tended to depreciate ; when our inflation was relatively low, our exchange rate tended to appreciate. of course, there have been divergences between the two lines, sometimes for periods of three or four years at a time, and that is illustrated by the dashed line, or real exchange rate. but over the whole period shown, nearly 30 years, there has been no persistent tendency for the real exchange rate to rise or fall, and that is true despite the fact that through the first half of the period the exchange rate was essentially pegged to the us dollar ( with periodic devaluations ) while for the last 13 years the currency has been floating. the dashed line - the real exchange rate - has fluctuated around a pretty flat trend - line

at https : / / www. federalreserve. gov / data / sloos. htm. - 2while the u. s. banking and financial system remains sound and resilient, the recent failures of three u. s. banks with unique risk profiles have added to the uncertainty surrounding the economic outlook. this uncertainty is further complicated by stock price movements among regional banks. should inflation remain high and the labor market remain tight, additional monetary policy tightening will likely be appropriate to attain a sufficiently restrictive stance of monetary policy to lower inflation over time. i also expect that our policy rate will need to remain sufficiently restrictive for some time to bring inflation down and create conditions that will support a sustainably strong labor market. of course, the economic outlook is uncertain and our policy actions are not on a preset course. i will consider the incoming economic and financial data during the intermeeting period and its implications for the economic outlook in determining my view of the appropriate stance of monetary policy. i will look for signs of consistent evidence that inflation is on a downward path when considering future rate increases and at what point we will have achieved a sufficiently restrictive stance for the policy rate. in my view, the most recent cpi and employment reports have not provided consistent evidence that inflation is on a downward path, and i will continue to closely monitor the incoming data as i consider the appropriate stance of monetary policy going into our june meeting. my remarks today will address the recent bank failures in the united states and how the evolution of the banking industry has influenced and amplified bank deposit run risk. i will then discuss supervision, regulation, bank management culture, and technology, and how each of these changes the dynamics of our approach to building a stronger and more resilient financial system. finally, i will close with my views on the importance of approaching the future in a deliberate, evidence focused, and thoughtful manner. - 3the evolving context of banking and bank failures those who are involved in the business of banking will not find this shocking, but it is a fundamental fact that banking involves risk. it is inherent in, and foundational to, the business of banking : banks take demand deposits — a short - term liability — and make term loans — creating a long - term asset. absent this intentional risk - taking, banks could not play their indispensable role of credit provision in the economy. there are many other risks, with the specific risks that banks face today as varied as the wide range of