11 stress. for example, growth in core loans on banks ’ books has decelerated since late 2022, as banks tightened lending standards and demand slowed amid lagged effects from monetary policy tightening. the deceleration in core loan balances was especially pronounced in early 2023 even before the silicon valley bank collapse and has continued afterwards. and we did see discrete effects in deposit outflows in mid - march, but those flows have stabilized. moreover, banks have been able to replace core deposit outflows with large time deposits, federal home loan bank advances and other sources of funding. these actions are leading to a slowdown in credit growth, but one that is in line with monetary policy tightening. so, what does this mean for monetary policy? with the banking sector sound and resilient, fighting inflation remains my top priority, and i believe we will get there. what will get us there is setting the stance of policy at a level that will continue to help bring supply and demand in the economy into better balance. while i expect inflation to eventually settle near our 2 percent target because of our policy actions, we have to make sure what we saw in yesterday ’ s inflation report feeds through broadly across goods and services and that we do not revert back to what has been persistently high core inflation. the robust strength of the labor market and the solid overall performance of the u. s. economy gives us room to tighten policy further. as things stand now, my outlook for the stance of monetary policy that will get inflation near the fomc ’ s 2 percent target is roughly consistent with the fomc ’ s economic projections in june. i see two more 25 - basis - point hikes in the target range over the four remaining meetings this year as necessary to keep inflation moving toward our target. furthermore, i believe we will need to keep policy restrictive for some time in - 12 order to have inflation settle down around our 2 % target. since the june meeting, with another month of data to evaluate lending conditions, i am more confident that the banking turmoil is not going to result in a significant problem for the economy, and i see no reason why the first of those two hikes should not occur at our meeting later this month. from there, i will need to see how the data come in. if inflation does not continue to show progress and there are no suggestions of a significant slowdown in economic activity, then a second 25 - basis - point hike should come

appear to be a lot of evidence that a substantial credit crunch was in the works, i felt that waiting another six weeks was prudent risk management. in the end, i believed that risk management concerns slightly outweighed hiking based on the incoming data. i also felt more comfortable with this decision given that the median of the summary of economic projections ( sep ) signaled two additional rate hikes by the end of this year. early in march, prior to the march fomc meeting, i had planned to raise my terminal rate 50 basis points given the hot data that had come in at that point. but then came the turmoil in the banking sector. my thought was that credit conditions were going to tighten a lot as a result of the banking turmoil. i believed this tightening would effectively replace some of the tightening that otherwise would have been needed through monetary policy. the net result was that in the march sep, i left my projection of the terminal policy rate unchanged from december. but by june, there was little evidence that credit conditions were tightening more than would be expected as a result of monetary policy that had already tightened significantly. this led me to believe policy needed to be tighter relative to what i thought in march. so, i marked up my projected path for the federal funds rate at the end of 2023 by 50 basis points. so why did i walk you through this evolution of my thinking of the appropriate setting of policy? first, it highlights how the appropriate setting for monetary policy shifts over time. second, it shows that managing uncertainty and risks is a big part of my - 3job. third, i hope it allows you to better consider how policymakers will adjust the setting of policy in response to incoming data going forward. monetary policy lags a second issue for the fomc is how long it takes for changes in monetary policy to affect economic activity and inflation. as reported in the minutes of various fomc meetings, the committee often discusses these lags. there is a wide range of views among researchers and policymakers as to how long it takes for the full effect of monetary policy to register in the economy. what i would like to discuss is expectations for how long it will take for last year ’ s sizable monetary policy tightening to show up in the economic data. while there is no consensus on an exact length of time, traditional rules of thumb say that the maximum effect of an unexpected policy change, what economists call a “ shock, ” on the real economy is