stemming from the impact of past energy and food price increases on price and wage - setting behaviour must be avoided. the governing council is monitoring price - setting behaviour and wage negotiations in the euro area with particular attention. we have repeatedly expressed our concern about the existence of schemes in which nominal wages are indexed to consumer prices. such schemes involve the risk of upward shocks in inflation leading to a wage - price spiral, which would be detrimental to employment and competitiveness in the countries concerned. the governing council calls for these schemes to be abolished. turning to the monetary analysis, we need to recognise that the latest monetary data refer to the end of august and thus do not yet embody the impact of the recent intensification of the financial market turmoil. further data on this impact will be carefully evaluated. as a general observation, previous episodes suggest that financial market tensions can have a relatively limited impact on monetary developments, but they have also been associated with large portfolio shifts and thus have exerted significant influence on monetary data. while the still strong underlying pace of monetary expansion points to upside risks to price stability over the medium term, data up to august show that the growth of broad money and credit aggregates moderated over the past few months, reflecting the monetary policy decisions taken since 2005 to address risks to price stability. as a more detailed examination shows, the flat yield curve and the structure of bank deposit rates have led to a number of substitution effects. first, there has been a substitution from longer - term maturity assets into instruments covered by m3, which offer similar remuneration but greater liquidity and less risk. as a consequence, the annual growth rate of m3 probably overstates the underlying pace of monetary expansion. second, there have been substitution effects within m3. in contrast to the dynamic developments in m3, annual m1 growth has fallen to very low levels. this reflects relatively attractive interest rates for time deposits, which have increased the opportunity cost of holding cash or overnight deposits. although, at the level of the euro area as a whole, the availability of bank credit has, as yet, not been significantly affected by the ongoing financial tensions, the gradual moderation of growth in loans continued in the august data, as previously anticipated, with corporate demand for credit slowing. at the same time, the growth of loans to households continues to follow the downward trend observed over the past few years, as a result of higher short - term interest rates and housing market weakness in several parts of the euro area. to sum up

when their risk appetite drives prices higher relative to economic fundamentals, there may be a greater risk of outsized drops in prices that can be destabilizing. 4 the fed looks at a broad range of asset markets, including equities, treasury securities, corporate bonds, loans, and real estate. this table from our fsr shows the sizes of the asset markets discussed in this section as of q2, the most recent data available. the largest asset markets are those for residential real estate, equities, treasury securities, and commercial real estate ( cre ). 5 this year, asset valuations have generally risen notably above their historical levels. in particular, prices of residential and commercial properties remain above levels historically associated with fundamentals. house prices, relative to rents, are near alltime highs. further, prices have started increasing again in recent months after falling for more than a year. commercial property prices also remain high relative to rental income. i am watching closely the extent to which post - pandemic supply and demand patterns see the box “ vulnerabilities from asset valuations, risk appetite, and low interest rates ” in board of governors of the federal reserve system ( 2021 ), financial stability report ( washington : board of governors, may ), pp. 15 – 18, https : / / www. federalreserve. gov / publications / files / financial - stability - report20210506. pdf. see board of governors of the federal reserve system ( 2023 ), financial stability report ( washington : board of governors, october ), pp. 5 – 6, https : / / www. federalreserve. gov / publications / files / financialstability - report - 20231020. pdf. - 4normalize. demand in the office sector has remained weak, particularly in central business districts and coastal cities, with vacancy rates increasing further and rent growth declining. finally, average delinquency rates for commercial mortgage - backed securities have moved up recently, as office and retail loan performance has deteriorated. if delinquency rates generate selling pressure or increase notably further and result in forced sales of properties, then cre prices could decline sharply. another notable market development has been the significant increase in longerterm bond yields since june. decompositions between changes in expected rates and term premiums depend on the specific models and assumptions used, but i would say that an expectation of higher near - term policy rates does