includes a comprehensive analysis of developments in money and credit, is well - suited to provide useful information about monetary risks to financial stability that can have longer - term implications for price stability and output volatility. a second related policy issue is whether – or to what extent – central banks should “ lean against the wind ” of financial market excesses that can be expected to turn into a financial storm and whether they can do this both in a manner that is consistent with the preservation of price stability and by effectively using the single policy instrument at their disposal, the interest rate. in principle, this can be done, and should be done, under certain circumstances. this would require the monetary policy stance to be tightened in periods of booming financial markets, so as to contain the risk of instability to the price level over a longer - term horizon ( when the boom could turn into a bust ) ; in other words, in order to buy insurance against the risk of a financial crisis in which financial intermediation could grind to a halt. such a policy could also help address the problem of moral hazard that may be created by policies that aim only to mitigate the impact of adverse shocks to financial stability, and thus treat asset booms and busts asymmetrically. in practice, however, a policy of “ leaning against the wind ” is not always feasible ; it may by itself not be an effective means to contain unsustainable asset price bubbles in the presence of exuberant expectations and it may not be compatible with the maintenance of price stability over the medium term. 1 consequently, the single instrument of monetary policy – the central bank interest rate – cannot always be used, cannot be used systematically, to simultaneously achieve the price stability objective ( over the medium and longer term ) and effectively safeguard financial stability. clearly, additional tools must be employed to this end. central banks can further strengthen their analytical tools and methodologies that can help identify risks and vulnerabilities in the financial system and provide early warning signals of emerging imbalances and potential instabilities. and central banks – via their financial stability reviews and other means – have done so fairly successfully. but the recent experience has also shown that, despite the communication of such early warnings, the financial markets did not hear, or did not want to hear them for several reasons, including the influence of inappropriate incentive structures at different stages of the financial intermediation and securitisation chain. what is, therefore, needed is a more effective use

: it came in at 2. 0 percent in july — well below the 12 - month measure of core pce inflation. 15 the currently elevated level of inflation is driven by covid - related disruptions. as these covid - related disruptions subside, most forecasters expect inflation to move back down toward the federal reserve ’ s 2 percent long - run objective on its own. that is the sense in which currently high inflation is likely to be transitory. in that regard, the august monthly cpi reading was the first month with a notable retrenchment among covid - sensitive categories like hotels, used cars, and rental cars. the august 12 - month weighted median cpi was 2. 4 percent — less than half of the 12 - month cpi reading in august of 5¼ percent — suggesting significant skew in the distribution of price changes in the cpi basket. for more information on the weighted median cpi, see https : / / www. clevelandfed. org / en / ourresearch / indicators - and - data / median - cpi / background - and - resources. aspx. - 8so, i expect inflation to decelerate, and pre - covid inflation dynamics to return when covid disruptions dissipate. but with delta disrupting the rotation from goods to services and prolonging supply bottlenecks, it is uncertain just how fast and how much inflation will decelerate over the remainder of the year and into next year. therefore, i am monitoring a few upside risks closely. first, while rent and owners ’ equivalent rent both rose a moderate 0. 3 percent in the august cpi data, if housing services inflation moved up substantially more than expected, it could provide durable upward pressure on inflation. second, there is a risk that goods prices may not decelerate and return to precovid trends as is widely expected, for instance, if excess savings or disruptions to services result in persistently elevated goods demand. third, i will be watching for any signs that wage gains are feeding into higher inflation more broadly, but the evidence so far suggests that wage gains are broadly in line with productivity growth, and the labor share of income remains low relative to historical levels. to date, high markups and nonwage input costs appear to be more notable contributors to inflation than wage pressures. finally, i am vigilant for any signs that the current high level of inflation might push longer - term inflation expectations above levels consistent with