the risks surrounding the outlook and in judging the appropriate future course of monetary policy. references blinder, alan s. ( 2023 ). " landings, soft and hard : the federal reserve, 1965 – 2022, " journal of economic perspectives, vol. 37 ( winter ), pp. 101 – 20. duesenberry, james s. ( 1949 ). income, saving, and the theory of consumption behavior. cambridge, mass. : harvard university press. gali, jordi ( 1994 ). " keeping up with the joneses : consumption externalities, portfolio choice, and asset prices, " journal of money, credit and banking, vol. 26 ( february ), pp. 1 – 8. lindsey, david ( 2003 ). " a modern history of fomc communication : 1975 – 2002 ( pdf ), " memorandum, board of governors of the federal reserve system, division of monetary affairs, june 24. pollak, robert, a. ( 1970 ). " habit formation and dynamic demand functions, " journal of political economy, vol. 78 ( 4, part 1 ), pp. 745 – 63. stigum, marcia, and anthony crescenzi ( 2007 ). stigum's money market, 4th ed. mcgraw - hill. volcker, paul ( 1981 ). " dealing with inflation : obstacles and opportunities, " speech delivered at the alfred m. landon lecture series on public issues, kansas state university, manhattan, kansas, april 15. 5 / 6 bis - central bankers'speeches 1 the start date of 1989 is motivated by the fact that this was the earliest cycle in which the fomc was viewed as considering monetary policy actions in terms of discrete 25 basis point, 50 basis point, etc., rate moves in the federal funds rate target and, as such, is more comparable to today. see stigum and crescenzi ( 2007 ) for a discussion of the fomc's increased focus on federal funds rate targeting in the late 1980s as well as lindsey ( 2003 ), who describes the fomc's further shift toward targeting the federal funds rate in 1989 by discontinuing the practice of targeting borrowed reserves. 2 the pce inflation numbers in table 1 are revised data, which means the data that policymakers were reviewing at the time - the so - called real - time data - could have been different. in addition, for some of these cycles, policymakers focused

economic flows. in the near term, this points to the need to incorporate more guidance on meaningful stress testing into our supervisory policies and devote more attention to it in our supervisory practice. for meaningful stress testing, a bank must have strong information systems that can both aggregate information about the bank ’ s positions and facilitate analysis of the positions under different scenarios. better management information systems is one of the primary benefits of the move toward greater modeling of market and credit risk management. management information systems, however, are not enough. it also is necessary for management to assess the internal and external factors that create risk in relation to the bank ’ s positions in order to come up with revealing stress scenarios. and finally, a bank needs a process to ensure that the results of stress tests receive the high - level attention necessary for the bank to respond effectively to the results. in the near term, supervisors also must re - examine how they think about concentrations. one lesson from the recent turmoil is how correlations in market prices arise from previously unsuspected linkages : countries with similar government debt structures or similar exchange rate regimes, institutional investors with similar risk strategies, and instruments traded with widely different customers, but with a common element of market risk, such as a countryrelated risk. stress testing also can be useful in identifying such concentrations, particularly when accompanied by thoughtful analysis from bank management. these issues will be addressed in the ongoing work of the committee on credit and liquidity risk management. in two other areas, we have begun work, but the magnitude of the efforts will involve more time. the first area is capital. the added focus on stress testing by banks and by supervisors should also influence how supervisors evaluate capital adequacy at banks. as banks are developing risk management and stress testing approaches, some are beginning to look at how they determine whether their capital is adequate to absorb losses, including losses under reasonable stress scenarios. one lesson from the current environment is the enormous size of market movements that are possible in such a stress scenario — whether in currency or equity markets or in credit spreads, and how quickly losses from even small positions can mount. as banks develop new methods of evaluating capital adequacy, we can consider whether these approaches provide new tools for assessing capital adequacy from a supervisory perspective. the second area is transparency. the challenge of understanding the impact of changes in the financial system on banks and financial markets should add impetus to our efforts to increase transparency in the financial markets. as understanding the