michelle w bowman : high inflation and the outlook for monetary policy speech by ms michelle w bowman, member of the board of governors of the federal reserve system, at the american bankers association community banking conference, palm desert, california, 21 february 2022. * * * before we get to our conversation on community banking, i would like to briefly discuss my outlook for the u. s. economy and my view of appropriate monetary policy. 1 as i see it, the main challenge for monetary policy now is to bring inflation down without harming the ongoing economic expansion. inflation is much too high. last year i noted that inflationary pressures associated with strong demand and constrained supply could take longer to subside than many expected. since then, those problems have persisted and inflation has broadened, reaching the highest rate that americans have faced in forty years. high inflation is a heavy burden for all americans, but especially for those with limited means who are forced to pay more for everyday items, delay purchases, or put off saving for the future. i intend to support prompt and decisive action to lower inflation, and today i will explain how the fed is pursuing this goal. in the near term, i expect that uncomfortably high inflation will persist at least through the first half of 2022. we may see signs of inflation easing in the second half of the year, but there is a substantial risk that high inflation could persist. in january, the consumer price index rose to a 12 - month rate of 7. 5 percent, which, consistent with other recent monthly readings, was even higher than expected. employment costs for businesses, as measured by average hourly wages, also rose last month. and continued tightness in the labor market indicates that upward pressure on wages and other employment compensation is not likely to moderate soon. my base case is that inflation will moderate later this year, which will depend, in part, on appropriate actions by the federal open market committee ( fomc ). but with wage growth lagging behind inflation for the past year, many families may find it challenging to make ends meet and continued rising home prices will likely prevent many from entering the housing market. in addition, rising costs and hiring difficulties continue to be burdens for small businesses. turning to the labor market, which continues to tighten, indications are that the omicron infection surge earlier this year has not left a negative imprint on the economy or slowed job creation. i expect to see continued strength in the job market this year, with further gains

clients ( typically corporate entities and formal sector employees ), at a high cost, within a narrow geographical location ( typically the major towns and peri - urban areas, and they have made high returns in doing so ( see table 2 ). disappointingly, nbfis have typically served the same client base and have not offered effective competition to commercial banks. 4. 1 initiatives to expand access to financial services there are a number of strategies being implemented by both the private and public sectors to make the financial sector more inclusive, thereby increasing the benefits to the poor of participating in the formal economy. 4. 1. 1 financial service providers currently, there are signs that a number of financial institutions are re - positioning themselves in terms of location and product offerings. this is evidenced by an expanding branch network and the range of lower - cost products that are now available in the market. for instance, some commercial banks have begun to offer new financial products and services, particularly in retail and community banking. this expansion has also been noted in the microfinance sector which is growing to fill the supply gap for finance that arose from the closure of banks and branches in rural and peri - urban areas earlier on. with the microfinance regulations issued in 2006, the number of microfinance institutions licensed by boz, for instance, has grown from 3 in 2006 to 15 as at june 30, 2008, with several other applications currently under consideration. this change in strategy is partly due to the strengthened fiscal position of the government and the significant fall in annual inflation to single digit levels in 2006 for the first time in three decades. these developments have resulted in reduced returns on investment in treasury bills and government bonds thus compelling banks and nbfis to actively seek other investment avenues. to this end, domestic credit to the private sector as a percentage of gdp has increased from 18. 7 percent at the end of 2005 to 43. 0 percent at end of 2007. in the same period, the proportion of national savings increased from 18. 1 percent to 21. 6 percent. 4 these statistics are good indicators of improving access to financial services. 4. 1. 2 government the government is encouraging the state - owned nbfis, that already deal with the lowincome market to deepen and broaden their services. some of these already have an increasing presence country wide and have developed strategic development plans, aimed at extending financial services to the low income population. the role of government as shareholder of public nbfis