is that, for these major banks, neither supervisory nor market discipline can be effective unless banks'own systems can be relied upon to measure and manage risk taking and capital adequacy. one sometimes hears that the advanced approaches of basel ii are " too complex " for anyone to understand, and the mathematical formulas in various drafts of the framework can look like a foreign language to some readers. but remember the complexity in basel ii reflects today's sophisticated risk - management practices that employ advanced quantitative methods. most of you in this room understand that mathematics and statistics are an integral part of how you manage your businesses. thus, it is only sensible to implement a framework at our largest institutions that is in line with what bankers themselves are doing. and since those practices change rapidly, it is necessary to have flexibility for incorporating new and better practices without having to conduct fundamental restructuring. i believe the framework provides a useful and credible basis for improving risk - management practices today and allowing for future improvements. we consider this vitally important because banking will remain a highly dynamic industry. supervisors will have to be especially attentive to changing 1 / 4 practices and ensure that basel ii does not inhibit adoption of new banking practices and financial instruments. basel ii developments in the united states you are most likely aware that over the past several months the u. s. banking agencies have been conducting additional analysis of the results from the fourth quantitative impact study - known as qis4. as the interagency statement issued on april 29 indicated, results from qis4 were more widely dispersed and showed a larger overall drop in regulatory capital requirements for the qis4 population of banks than the agencies had expected. the agencies'reaction to the qis4 results, taking additional time to understand and react to the information provided by the banks, shows how seriously we are taking basel ii implementation. this was the impetus for deciding to delay the notice of proposed rulemaking ( npr ) for basel ii. analyzing the data used in qis4 is vitally important, because ultimately the success of basel ii will depend on the quality of data and models that banks use to implement the framework. i would like to point out that qis4 was the most recent in a series of assessments about the framework's potential impact. in conducting qis4, we understood that banks lacked full information about what will eventually be expected of them - - one example is lack of precision about downturn estimates for lgd ( loss given default ). understandably

- adjusted wages. inflation price increases have cooled notably over the past two and a half years, but, despite this significant progress on disinflation, there is still further to go before reaching our inflation target of 2 percent. annual inflation, as measured by the personal consumption expenditures ( pce ) price index, has eased to 2. 4 percent in november 2024, the latest available reading, from a peak of 7. 2 percent in june 2022. when excluding often volatile food and energy costs, core pce was down to 2. 8 percent in november from 5. 6 percent in september 2022. inflation readings can be volatile month to month, and the path of disinflation has been bumpy and may continue to be. monthly readings earlier in the fall were slightly - 4stronger than expected. however, november ’ s monthly change was lower than expected and consistent with a 2 percent inflation trend. over the past year, core goods prices decelerated, reflecting that supply and demand have come into better alignment. meanwhile, the more modest wage growth i mentioned has contributed to downward pressure on services inflation, outside of housing. rent growth and other measures of housing inflation remain elevated but stepped down in the november report. i expect more progress in reducing housing services inflation this year as the earlier slowing in growth of rents charged to new tenants feeds through into the growth of average rents. i continue to see inflation as gradually — if unevenly — returning over time to our goal of 2 percent in a sustainable manner. labor market turning to the labor market, i see it as solid, though as having cooled over the past year. the u. s. labor market has come into better balance after a period of being very tight, with high turnover, during the initial recovery from the pandemic. the unemployment rate was 4. 2 percent in november. while the latest reading is still below historical averages, it has risen from the multidecade low of 3. 4 percent in april 2023. new applications for unemployment benefits and other measures of layoffs also remain low, but the rate of hiring has slowed to below the pace recorded in the years before the pandemic. the number of open jobs has essentially come back in line with the number of unemployed americans seeking work. the ratio of job vacancies to unemployed workers has fallen to 1. 1 from a peak of 2. 0 in 2022. i will continue to - 5monitor developments in the labor