economy still faces significant headwinds and that there are some meaningful downside risks. in the headwinds department, i would include the run - up in gasoline prices mentioned earlier because that will sap purchasing power, the continued impediments to a strong recovery from ongoing weakness in the housing sector, and fiscal drag at the federal and state and local levels. in terms of downside risks, these include the risk that growth abroad disappoints and the risk of further disruptions to the supply of oil and higher oil prices. on the inflation front, the overall rate of increase of consumer prices, as measured by the 12 - month change of the price index for personal consumption expenditures slowed to 2. 3 percent in february from a recent peak of 2. 9 percent last september. even though the recent rise of gasoline prices mentioned above could interrupt this pattern, we expect this moderation of overall inflation to resume later this year. while the underlying core inflation rate, that strips out volatile food and energy prices, has been somewhat higher than expected a few months back, it appears that the annual rate of core inflation1 has peaked and we expect it to begin to decline later this year. 2 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 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 that began in new york state in late 2009 has continued through early 2012, and even gained some momentum. across upstate new york, broadly speaking, the cycle of recession and recovery has been much less pronounced than in the nation, and even the state as a whole. this pattern has been true in syracuse, as well. employment fell by a little over 4 percent during the downturn – a steep drop, to be sure – but only about two - thirds of the decline that occurred nationally. this is quite a change from the region ’ s past recessions, which have tended to be longer and deeper than the nation ’ s. one reason why upstate new york weathered the economic storm a bit better than the nation is the resiliency of its housing markets. like much of upstate new york, syracuse ’ s housing market has been relatively stable and did not experience a

even without the political pressures those governments face. one final note on the financial system. the global financial system is in the process of very dramatic change. the changes of even just the last five years are extraordinary, in terms of the size, and strength, and scope of the major global firms, the role of private leveraged funds, the extent of risk transfer and the increase in the size of the derivatives market, the change in the structure of the credit market, the increase in and changes in the pattern of cross border financial flows. these changes, and others, seem likely to have made the financial system both more effective in moving capital to its most productive use and more stable and resilient over time. but they do not, of course, mean the end of systemic risk in financial markets. they could in some circumstances work to magnify rather than mitigate stress. central banks, supervisors and those running the major private financial institutions need to continue to work to ensure that what jerry corrigan calls the “ shock absorbers ” in the financial system - capital and liquidity and the operational infrastructure - are sufficiently strong and robust to withstand economic and financial conditions more adverse than we have seen in the recent past. thank you.