needs and developing action plans. nevertheless, the federal reserve and the other federal banking agencies are actively reviewing the efforts of banks to address this vital issue. some banks, particularly large ones, have stated, themselves, that if an institution is not already well underway toward resolving this problem, then it is already too late. i hope that all of you are giving this matter adequate attention, and are taking the steps necessary to ensure that changes are being made within your banks, and also by your vendors and customers. a critical aspect of the year 2000 problem is that we are all so inter - linked. not only are we exposed to our own internal computer problems, but also to those with whom we do business. this matter has far - reaching implications for banks, covering not only operating risk, but also credit risk, liquidity risk, reputational risk, and others if material problems emerge. this is yet another illustration of the many challenges faced by bankers today. conclusion in conclusion, the history of banking and of bank supervision shows a long and rather close relationship between the health of the banking system and the economy, a connection that reflects the role of banks in the credit intermediation process. we can expect that relationship to continue and for bank earnings and asset quality to fluctuate as economic conditions change. in many ways, however, the banking and financial system has changed dramatically in the past decade both in terms of its structure and the diversity of its activities. risk management practices have also advanced, helped by technological and financial innovations. i believe that both bank supervisors and the banking industry have learned important lessons from the experience of the past ten years, specifically about the need to actively monitor, manage, and control risks. through its supervisory process, the federal reserve seeks to maintain a proper balance : permitting banks maximum freedom, while still protecting the safety net and maintaining financial stability. maintaining responsible banking and responsible bank supervision is the key. we must all work to identify risks and to ensure they are adequately monitored and controlled. that result will lead to better banking practices, to more stable earnings and asset quality for the industry, and to less regulatory and legislative risk. these are goals we all share.

##omc participants, core inflation edges down slightly and then remains fairly stable at about 1 - 3 / 4 percent toward the end of the decade. meanwhile, given an anticipated flattening out of energy prices, overall consumer inflation in these projections declines toward the core inflation rate ; it drops from about 3 percent this year to about 2 percent in 2008 and then drops a bit further near the end of the decade. these projections are consistent with a point i made in an earlier speech - - namely, in recent decades core inflation has tended to be a good predictor of overall inflation further ahead ( mishkin, 2007c ). furthermore, these projections demonstrate that fomc participants do not think that the federal reserve should, or even could, achieve an immediate reduction of overall inflation to its mandate - consistent rate. the recent high level of overall inflation reflects rapidly rising energy prices that the federal reserve obviously cannot control. for this reason, any attempt to bring overall inflation down too quickly would entail large losses of output and employment, and hence such an approach would be inconsistent with the federal reserve's dual mandate, which places a balanced emphasis on both price stability and maximum employment. the outlook for economic activity the midpoint of the range of projections for real gdp growth declines noticeably from about 2 - 1 / 2 percent for 2007 to roughly 2 percent in 2008 ; then it returns to about 2 - 1 / 2 percent in 2009 and 2010. the projection narrative indicates that the near - term weakness in the economy importantly reflects the sharp contraction in the housing market and the recent strains in the credit markets. as i have already noted, monetary policy works only with a lag and hence cannot offset these near - term effects ; rather, the recent cuts in the federal funds rate are intended to help bring economic activity back to maximum sustainable levels over time, and such an outcome can be seen in the broad contours of the fomc projections. there is considerable diversity in the views of participants about the outlook for near - term growth. the range of forecasts for the growth of real gdp in 2008 is from 1. 6 percent to 2. 6 percent - - twice as wide as in the previous set of fomc projections, which were published last june. as part of the enhanced projections process, fomc participants provide a qualitative assessment of the magnitude of uncertainty surrounding their projections relative to average levels of uncertainty. as a benchmark for these qualitative assessments, the forecast narrative provides