gses, both companies were large and complex and deeply embedded in our financial system. in both cases, as the firms approached default, the treasury and the federal reserve sought private - sector solutions, but none was forthcoming. attempts to organize a consortium of private firms to purchase or recapitalize lehman were unsuccessful. with respect to publicsector solutions, we determined that either facilitating a sale of lehman or maintaining the company as a free - standing entity would have required a very sizable injection of public funds – much larger than in the case of bear stearns – and would have involved the assumption by taxpayers of billions of dollars of expected losses. even if assuming these costs could be justified on public policy grounds, neither the treasury nor the federal reserve had the authority to commit public money in that way ; in particular, the federal reserve's loans must be sufficiently secured to provide reasonable assurance that the loan will be fully repaid. such collateral was not available in this case. recognizing that lehman's potential failure posed risks to market functioning, the federal reserve sought to cushion the effects by implementing a number of measures, including substantially broadening the collateral accepted by the fed's primary dealer credit facility ( pdcf ) and term securities lending facility ( tslf ) to ensure that the remaining primary dealers would have uninterrupted access to funding. in the case of aig, the federal reserve and the treasury judged that a disorderly failure of aig would have severely threatened global financial stability and the performance of the u. s. economy. that judgment reflected our assessment of prevailing market conditions, aig's central role in a number of markets other firms use to manage risks, and the size and composition of aig's balance sheet. to avoid the default of aig, the federal reserve was able to provide emergency credit that was judged to be adequately secured by the assets of the company. to protect u. s. taxpayers and to mitigate the possibility that lending to aig would encourage inappropriate risk - taking by financial firms in the future, the federal reserve further ensured that the terms of the credit extended to aig imposed significant costs and constraints on the firm's owners, managers, and creditors. aig's difficulties and lehman's failure, along with growing concerns about the u. s. housing sector and economy, contributed to extraordinarily turbulent conditions in global financial markets in recent weeks. equity prices have fallen sharply, the cost of short - term credit

##s demand, assuming that the economy is growing moderately ( at its potential ) and unemployment is roughly where it is now. however, my base case for july depends on incoming data. we have important data releases on retail sales and housing coming in before the july meeting. if that data come in materially stronger than expected it would make me lean towards a larger hike at the july meeting to the extent it shows demand is not slowing down fast enough to get inflation down. based on what we know about inflation today, i expect that further increases in the target range will be needed to make monetary policy restrictive, but that will depend on economic data in the coming weeks and months. between the end of july and the fomc ’ s september meeting, we will get two employment and cpi reports with data for july and august. i will be looking for signs that inflation has started its move down toward our 2 percent target on a sustained basis. i anticipate a decline in inflation will come as actual and anticipated hikes by the fomc cool demand for products and labor, which will help demand and supply come into a better balance. the decline in the rate of inflation will also be assisted by continued improvement in goods supply bottlenecks, which is occurring in some sectors, and an increase in labor force participation, which is still significantly lower than it was before the pandemic. i hope these supply recoveries happen, but my expectations for - 9policy don ’ t rely on it. i expect rate increases will continue after july at a pace that is dependent on the incoming data. after the july meeting, further increases will be restricting demand. looking further in the future, i will need to see how the tightening this year is affecting the economy and bringing inflation down toward our 2 percent target. based on my forecast for the economy, i expect monetary policy to be restrictive until there has been a sustained reduction in core personal consumption expenditure ( pce ) inflation, which excludes food and energy. food and energy prices tend to be volatile, so focusing on core pce inflation is a good guide to inflation pressures in the near and medium term. importantly, as futures prices for commodities — food, energy, raw materials — have declined recently, i am expecting total pce inflation to decline in coming months. but until i see a significant moderation in core prices, i support further rate hikes. in talking about where monetary policy is headed, it is helpful to get a fix on