monitors a broad set of non - monetary economic and financial variables, such as wages, unit labour costs, fiscal policy statistics and financial market indicators like stock prices and exchange rates. most of this analysis focuses on cost pressures and on the interplay between supply and demand in the goods and labour markets. it also helps to ascertain whether shocks to the euro area economy and the resulting risks to price stability have an external or domestic origin, are of a temporary or permanent nature, and arise from the supply or demand side. within the framework of the second pillar, the eurosystem staff also produce macroeconomic projections which are published in the ecb monthly bulletin twice a year. the macroeconomic projections elaborated by the eurosystem staff do not represent the ecb's predictions of the most likely macroeconomic outcomes, but are built on the assumption of unchanged short - term interest rates and exchange rates of the euro. it is important to recognise that the eurosystem's projections are produced on the basis of models that do not assign a relevant role to money and that there is also a host of other economic and financial indicators whose information could not be adequately conveyed by a simple figure or a statistical range. in its decision - making the governing council therefore assesses the staff's projections together with all the other information under the second pillar, in conjunction with the monetary analysis developed within the first pillar. it is important to understand that the process of monetary policy formulation of the ecb is not centred on any forecast or projection and thereby departs from the practice followed by inflation - targeting central banks. the monetary policy decisions of the ecb have not responded mechanistically in the past, and will not do so in the future, to deviations of staff's inflation projections from any numerical target. the governing council, moreover, does not take any responsibility for the staff's projections which, as with forecasts produced by other institutions, are regarded as just one of the inputs into its deliberations. given the uncertainty and different views about the appropriate model of the economy, it would not be productive for the governing council to produce its own single projection. the governing council instead focuses directly on setting policy rates, taking into account all information, and the uncertainty surrounding this information, in such a way that price stability can best be maintained over the medium term. the robust and cross - checking assessment of information which characterises our two - pillar strategy has proved so far to be providing the governing council

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