financial instability from time to time, and policymakers will be forced to make judgments about the costs and benefits of alternative responses with very incomplete information. in a financial crisis, the potential cost of inaction or inadequate action is possible disruption to the real economy, which would damp activity and put undesirable downward pressure on prices. such disruptions can come about because crises heighten uncertainty about the financial status of counterparties and about the eventual prices of assets. in an especially uncertain environment, lenders may become so cautious that credit supplies are cut back more than would be justified by an objective assessment of borrowers ’ prospects ; concerns about counterparty risk can impair the smooth functioning of payment and settlement systems, interfering with a wide variety of markets ; asset prices can be driven well away from equilibrium values ; and confidence can be undermined. these types of tail events could depress economic activity for a time and, if prolonged, could also adversely affect efficiency and productivity by impairing the ability of financial markets to channel savings into the most productive investments. although policy action may be able to reduce the odds of adverse effects or alleviate their impact, some policy responses to a crisis can themselves have important costs that need to be balanced alan greenspan ( 2004 ), “ risk and uncertainty in monetary policy, ” american economic review, vol. 94 ( may ), pp. 33 - 40. edward c. ettin, myron l. kwast, and patrick m. parkinson, of the board ’ s staff, provided valuable ideas and comments. against their possible benefits. in short, intervening in the market process can create moral hazard and weaken market discipline. if private parties come to believe in the possibility of policy actions that will relieve them of some of the costs of poor decisions or even just bad luck, their incentives to appropriately weigh risks in the future will be reduced and discipline on managers watered down. weaker market discipline distorts resource allocation and can sow the seeds of a future crisis. the possible real costs of policy actions implies that they should be taken only after the determination that, in their absence, the risk is too high that the crisis will disrupt the real economy. once that judgment is reached, the central bank and other authorities have a variety of instruments to use, and the degree of potential moral hazard created will depend on the instrument chosen. approaches that work through the entire market rather than through individual firms run a lower probability of distorting risk - taking. thus, a

came in at 2. 6 percent in july, again remaining well above our 2 percent goal. in addition, the latest consumer and producer price index reports suggest that 12 - month core pce inflation in august was likely a touch above the july reading. the persistently high core inflation largely reflects 1 / 5 bis - central bankers'speeches pressures on housing prices, perhaps due in part to low inventories of affordable housing. the progress in lowering inflation since april is a welcome development, but core inflation is still uncomfortably above the committee's 2 percent goal. prices remain much higher than before the pandemic, which continues to weigh on consumer sentiment. higher prices have an outsized effect on lower - and moderateincome households, as these households devote a significantly larger share of income to food, energy, and housing. prices for these spending categories have far outpaced overall inflation over the past few years. economic growth moderated earlier this year after coming in stronger last year. private domestic final purchases ( pdfp ) growth has been solid and slowed much less than gross domestic product ( gdp ), as the slowdown in gdp growth was partly driven by volatile categories including net exports, suggesting that underlying economic growth was stronger than gdp indicated. pdfp has continued to increase at a solid pace so far in the third quarter, despite some further weakening in housing activity, as retail sales have shown further robust gains in july and august. although personal consumption has remained resilient, consumers appear to be pulling back on discretionary items and expenses, as evidenced in part by a decline in restaurant spending since late last year. low - and moderate - income consumers no longer have extra savings to support this type of spending, and we have seen loan delinquency rates normalize from historically low levels during the pandemic. the most recent labor market report shows that payroll employment gains have slowed appreciably to a pace moderately above 100, 000 per month over the three months ending in august. the unemployment rate edged down to 4. 2 percent in august from 4. 3 percent in july. while unemployment is notably higher than a year ago, it is still at a historically low level and below my and the congressional budget office's estimates of full employment. the labor market has loosened from the extremely tight conditions of the past few years. the ratio of job vacancies to unemployed workers has declined further to a touch below the historically elevated pre - pandemic level - a sign that the