helps improve the public's understanding of our goals and actions. 3 it has also helped to keep various measures of longer - run inflation expectations remarkably well anchored at levels consistent with our 2 percent longer - run goal. 4 although short - and medium - term inflation expectations rose during the pandemic, these measures have since come down. indeed, based on the latest reading of the new york fed's survey of consumer expectations, three - year - ahead expectations have returned to a level nearly identical to its average between 2014 and 2020. although one - year - ahead inflation expectations in the survey remain elevated, they have declined considerably from the peak level reached in june 2022. 5 to understand why inflation remains too high, it's instructive to examine inflation developments in various sectors of our economy. so far, inflation has declined in many categories of commodities and goods, which tend to be more sensitive to interest rate increases. in addition, supply chains, which were severely constrained after the pandemic's onset, have improved considerably. this is something i hear from business leaders from across the federal reserve's second district. and the new york fed's global supply chain pressure index has declined to a level that indicates supply chain pressures are now actually somewhat lower than normal. 6 at the same time, the march price data indicate some moderation in overall rent inflation. and rents for new leases have been showing slower rates of increases, which should bring down shelter inflation in coming months. this is important because shelter inflation had been a significant driver of higher inflation over the past year. but the most persistent area of inflation is in core services excluding housing, which has been running around 4 - 1 / 2 percent since last august. this is driven by a continued imbalance in overall supply and demand, and it will take the longest to bring down. bringing back the balance in " the rise of skywalker, " anakin urged rey to " bring back the balance. " the fomc has been taking strong actions to do just that. last week, the fomc raised the target range for the federal funds rate to 5 to 5 - 1 / 4 percent, its tenth consecutive rate increase. in its post - meeting statement, the fomc indicated that " in determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic

interest that can lead to problematic outcomes. in exposures where the measurement of potential loss is more uncertain, more subjective, and less amenable to independent evaluation, for example, reasonable people can come to very different judgments about the potential risk in a particular position. normal competitive pressures can push valuation methods away from the conservative extreme and generate larger exposures to risk. as a result, individual firms and the overall market are more exposed to risk in a stress scenario than would be desirable. another set of challenges comes with the broader damage to markets that can accompany the failure of a major financial institution. firms have strong incentives to avoid large financial losses and to reduce the risk of failure, of course, but they do not have the incentive to internalize the potential external consequences of their distress on the financial system, and it is unrealistic for market participants to incorporate these risks into market prices. this “ public good ” dimension of financial stability means that while the whole economy benefits from a more stable financial system, each individual institution would prefer that others incur the costs associated with its provision. as a result, firms may collectively underinsure against the risk of failure and underinvest in the infrastructure and policies that promote financial stability. and finally, policies designed to reduce the risk of failure in financial markets create moral hazard, dulling the incentive individual firms face to self - insure against potential loss. we apply a set of capital requirements and supervisory constraints to offset the distortion created by the safety net, but these may not fully compensate for the impact on behavior of the broader range of financial intermediaries of the perception that the authorities will act to protect the financial system from systemic risk. while these constraints and challenges may weaken the effectiveness of counterparty discipline, they are not fatal constraints. if individual dealers to a very large hedge fund each operate with adequate knowledge of the risk profile of the fund, if they each make conservative judgments about their potential direct exposure to the fund in a stress scenario, if they limit the overall exposure of the firm as a whole to the broader market distress that might accompany that failure of a major hedge fund, if they compensate for the uncertainty in making these judgments by charging appropriate risk premia or building in a greater cushion against adversity, and if the supervisory constraints on the core institutions adequately offset the moral hazard that comes with that relationship, then the financial system as a whole will be less vulnerable to distress in the hedge fund sector. these are exacting conditions, but