’ s 2 percent objective, with the personal consumption expenditures ( pce ) price index up only 1 / 4 percent over the 12 months ending in may and the core index, which excludes the volatile food and energy components, up only 1 - 1 / 4 percent over the same period. to a significant extent, the recent low readings on total pce inflation reflect influences that are likely to be transitory, particularly the earlier steep declines in oil prices and in the prices of non - energy imported goods. indeed, energy prices appear to have stabilized recently. although monthly inflation readings have firmed lately, the 12 - month change in the pce price index is likely to remain near its recent low level in the near term. my colleagues and i continue to expect that as the effects of these transitory factors dissipate and as the labor market improves further, inflation will move gradually back toward our 2 percent objective over the medium term. market - based measures of inflation compensation remain low – although they have risen some from their levels earlier this year – and survey - based measures of longer - term inflation expectations have remained stable. the committee will continue to monitor inflation developments carefully. monetary policy regarding monetary policy, the fomc conducts policy to promote maximum employment and price stability, as required by our statutory mandate from the congress. given the economic situation that i just described, the committee has judged that a high degree of monetary policy accommodation remains appropriate. consistent with that assessment, we have continued to maintain the target range for the federal funds rate at 0 to 1 / 4 percent and have kept the federal reserve ’ s holdings of longer - term securities at their current elevated level to help maintain accommodative financial conditions. in its most recent statement, the fomc again noted that it judged it would be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. the committee will determine the timing of the initial increase in the federal funds rate on a meeting - by - meeting basis, depending on its assessment of realized and expected progress toward its objectives of maximum employment and 2 percent inflation. if the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy. indeed, most participants in june projected that an increase in the federal funds target

not just the federal reserve – should be directed and empowered to take account of risks to the broader financial system as part of their normal oversight responsibilities. conclusion as we work together to build on the progress already made toward securing a sustained economic recovery, we cannot lose sight of the need to reorient our supervisory approach and to strengthen our regulatory and legal framework to help prevent a recurrence of the events of the past two years. as i have described today, the federal reserve has been actively engaged in this process. we are working with our domestic and international counterparts to strengthen the standards governing bank capital, liquidity, risk management, incentive compensation, and consumer protection, among other areas. we are also improving supervision, and giving it a greater macroprudential focus, through enhanced consolidated supervision and through the development of new supervisory tools – including comprehensive horizontal reviews, off - site quantitative evaluations, and more extensive information gathering. we are moving quickly to bring unresolved issues to the attention of senior management and requiring prompt responses. regulators and supervisors can do a great deal, but comprehensive financial reform requires action by the congress. strengthening consolidated supervision, setting up a mechanism ( such as a systemic oversight council ) to identify and monitor risks to financial stability, and creating a framework that allows for the safe unwinding of failing, systemically critical firms are among the essential ingredients of a new system that will reduce the probability of future crises and greatly mitigate the severity of any that occur. we at the federal reserve look forward to working closely with the congress as the legislative process evolves.