federal funds rate an additional 100 basis points in october. half of that reduction came as part of an unprecedented coordinated interest rate cut by six major central banks on october 8. the committee's rapid monetary easing was not without risks. some observers expressed concern at the time that these policies would stoke inflation, and, indeed, inflation reached high levels earlier this year, mostly as the result of a surge in the prices of oil and other commodities. throughout this period, the committee remained closely attuned to inflation developments. because control of inflation requires that the public's longer - term inflation expectations remain well anchored, we paid particularly close attention to indicators of those expectations, as inferred, for example, from financial markets and from surveys of households and businesses. however, the committee maintained the view that the rapid rise in commodity prices primarily reflected sharply increased demand for raw materials in emerging market economies, in combination with constraints on the supply of these materials, rather than general inflationary pressures. we expected that, at some point, global economic growth and the associated growth in the demand for commodities would moderate, which would result in a leveling out of commodity prices, consistent with the predictions of futures markets. as you know, commodity prices peaked during the summer and, rather than leveling out, have actually fallen dramatically with the weakening in global economic activity. as a consequence, overall inflation appears set to decline significantly over the next year toward levels consistent with price stability. although monetary easing likely offset some part of the economic effects of the financial turmoil, that offset has been incomplete, as widening credit spreads and more restrictive lending standards have contributed to tight overall financial conditions. in particular, many traditional funding sources for financial institutions and markets have dried up, and banks and other lenders have found their ability to securitize mortgages, auto loans, credit card receivables, student loans, and other forms of credit greatly curtailed. consequently, the second component of the federal reserve's strategy has been to support the functioning of credit markets and to reduce financial strains by providing liquidity to the private sector – that is, by lending cash or its equivalent secured with relatively illiquid assets. to ensure that adequate liquidity is available, consistent with the central bank's traditional role as the liquidity provider of last resort, the federal reserve has taken a number of extraordinary steps. for instance, to provide banks and other depositories easier access to liquidity, we narrowed the spread of the primary

fast track, i believe we can all agree that, in the united states, reform of our legal framework for banking regulation and supervision has been on the slow track. indeed, much of our legal framework has essentially not changed since the 1930s. in the meantime, the distinctions between financial institutions has become increasingly blurred, as financial institutions have endeavored to broaden the activities they engage in to take advantage of synergies among the activities and to compete with other financial institutions. the result has been a relentless search for loopholes by the financial institutions and efforts by regulatory authorities to find ways within their charter to permit new activities in order to preserve the competitiveness of the institutions under their charge. this process is not only inefficient, but creates new inequities, institutions that may be producing unintended risks, and the misallocation of resources. that is why my colleagues and i are such strong supporters of h. r. 10, the financial modernization act of 1998, which the house passed last month and the senate banking committee approved in a modified form last week. both bills bring our financial institutions into the 21st century in a framework that minimizes risks and inequities. the task it sets for itself is not easy. first and foremost the bills would finally let financial institutions get into each other ’ s businesses, and thus widen the scope and range over which institutions can compete for the public ’ s business. mind you, this is not a statement that says financial supermarkets and / or large institutions will be better or more successful than specialized and / or smaller institutions. but the benefit is that the public, not regulators, will decide which will prosper as competitors all bend their efforts to serve the consumer. that is the bottom line. it ’ s the reason why there should be financial modernization. but the bills also establish a structure of bank supervision that is consistent both with efficient resource allocation and with minimizing risk to the stability of the economy and the taxpayer. the key elements to that structure are some residual limits on bank activities, limitations on the location within the banking organization where the new activities can be conducted, a blending of functional and umbrella supervision, and the continuation of the federal reserve ’ s role in the consolidated supervision of banking organizations. both the house and the senate versions would permit banks to conduct in their own subsidiaries ( so - called operating subsidiaries or “ op subs ” ) only the same activities that they may already conduct in the bank and financial agency activities