payments, and demand from rental car companies. at the same time, the supply of vehicles has been held back by earlier production cutbacks and shortages of semiconductor chips. this imbalance in supply and demand has caused used car prices to soar. looking forward, supply will slowly come back online, and i therefore expect car prices to stabilize and then decline over time to more normal levels. 2 / 3 bis central bankers'speeches we have already seen this type of dynamic play out in some sectors. the latest data show growth in wholesale used car prices slowing in the first half of june. 4 and lumber prices, which soared during the pandemic as housing demand surged and supply struggled to keep up, have declined sharply in recent weeks. i expect that as price reversals and short - run imbalances from the economy reopening play out, inflation will come down from around 3 percent this year to close to 2 percent next year and in 2023. it goes without saying that there is a great deal of uncertainty about the inflation outlook, and i will be watching the data closely. the fed ’ s policy response it ’ s clear that the economy is improving at a rapid rate, and the medium - term outlook is very good. but the data and conditions have not progressed enough for the fomc to shift its monetary policy stance of strong support for the economic recovery. specifically, the fomc decided last week to maintain the target range for the federal funds rate at zero to ¼ percent and made no changes to its program of asset purchases. in thinking about adjusting its stance in the future, the fomc has defined conditions and measures that will inform its decision - making. in terms of the federal funds rate, the fomc said it expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the fomc ’ s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. the fomc also said it will maintain its current asset purchase pace until substantial further progress has been made toward its employment and inflation goals. 5 conclusion i hope you remember the “ things we said today, ” but if not, here ’ s my final message. the sun is shining, both literally and figuratively. progress on vaccinations and the economy is very welcome news, and i look forward to a full and complete recovery, accompanied by inflation that averages 2 percent over time.

time. 5 to manage these concerns, the mpc set out a transparent strategy for normalising monetary policy centred on its plan to run down the stock of assets accumulated through qe in a gradual and predictable manner. 6 this plan has governed the quantitative tightening ( qt ) programme over the past year. addressing new inflationary shocks but monetary policy cannot be put on an autopilot. any plan has to be conditional on economic conditions, and responsive to economic shocks and disturbances. 7 the mpc has flagged that it will use bank rate as its active instrument to address new shocks as they emerge, leaving the qt programme to run ‘ in the background ’ as long as market conditions permit. bank of england that naturally brings me to the second rationale for the substantial tightening of the monetary policy stance over the past year : the incidence of new inflationary shocks. two shocks in particular stand out : the very sharp rise in wholesale european gas prices over the past year ; and the decline in participation in the uk labour market ( against a backdrop of sagging market competition in the goods market ). the rise in gas prices has four important characteristics. first, it genuinely was a shock. looking back at the first speech i gave as an mpc member this time last year, 8 gas prices barely featured. rather the focus was on supply chain disruptions and the potential threat of the omicron variant, which had just started to emerge as i spoke in newcastle. second, the shock was large. although it has eased somewhat in recent months, the january european wholesale gas price future – most relevant for next year ’ s household energy bills that enter the cpi basket – rose more than ten times to its august peak. third, these gas price rises passed - through to the cpi inflation that the mpc targets relatively quickly : in a matter of months – certainly at a shorter horizon than the 18 - 24 months typically associated with the lagged pass - through of monetary policy actions to inflation developments. and fourth, higher gas prices exerted an adverse supply - side effect on the uk economy, and thus induced a difficult trade - off for monetary policy : inflationary pressures rose at a time when economic activity weakened. taken together, these characteristics implied that gas price driven volatility in cpi inflation was inevitable. given the famous ‘ long and variable lags ’ in the transmission of monetary policy, an immediate policy response to the gas price shock could not have prevented some rise in headline inflation. 9 in line