potential, so it is critical for the federal reserve to bring inflation back down to our goal. we are firmly committed to doing so. 1 / 4 bis - central bankers'speeches shifts and realignment those who have been following my speeches lately will know that i've been quite devoted to a recurring theme : using the layers of an onion to describe inflation. 1 but with the new year, i thought i would switch gears. i didn't have to look too far, because the mechanism of shifting gears is exactly what's going on in the economy. it also explains the effects that monetary policy is having on the economy and how that's helping to bring inflation back down. during the pandemic and its aftermath, we saw an enormous swing in demand, away from services like travel and entertainment and toward goods and housing, as people adjusted to work from home and avoided contact - intensive activities. more recently, we are seeing a rotation in demand from goods back into services. but through all these shifts, overall demand has remained very strong and has far exceeded supply. this misalignment of supply and demand is true for the labor market as well. although several indicators of labor demand - such as job openings, quits, and hiring - have stepped down from their very high levels of the first few months of 2022, they show that demand still far exceeds available supply. and the unemployment rate of 3. 5 percent is historically low. the same dynamics play out in the federal reserve's second district, the region that the new york fed represents. our regional business surveys indicate that activity is slowing, with an especially sharp decline in the manufacturing sector. that said, many businesses continue to add staff, and consumer confidence is strong. overall, inflationary pressures in the region are moving downward, but are still quite high. gears are turning with inflation running persistently above its longer - run goal of 2 percent, the fomc has taken strong actions to align demand with supply in the economy and bring inflation down. you can think of monetary policy as a large gear that is connected to smaller gears representing different sectors of the economy. but not all gears move at the same pace. some turn more quickly, while others are slower, meaning they experience longer lags between policy actions and effects. these effects of monetary policy are showing up in prices at different speeds. for example, the prices of globally traded commodities have already declined and are now well below levels we saw earlier last year

. this reflects in part the effects of lower demand resulting from tighter monetary policy here and abroad. similarly, prices for many goods have started to plateau or even decline, reflecting weaker demand, lower import costs, and an easing of global supply disruptions that developed during the pandemic. for example, prices of used cars - a big driver of inflation during the first year of the pandemic - have been retreating toward more normal levels over the past few months. the combination of the general rotation of demand from goods to services and the effects of higher interest rates on demand for goods should contribute to further downward pressure on the prices of many goods this year. 2 / 4 bis - central bankers'speeches one gear that is moving at a far slower pace is the price of non - energy services. the ongoing imbalance between supply and demand in this sector continues to contribute to inflationary pressures. but there is some good news on this front as well. one of the biggest drivers of the rise in inflation for services has been shelter costs, which soared as demand for housing increased during the pandemic. recent data for newly - signed leases indicate that the tide is turning on rents, and we should see shelter cost inflation start to slow later this year. that said, inflation for other services besides shelter has remained high, and this gear is only starting to turn. inflation expectations represent another gear that is turning at an encouraging speed. longer - run inflation expectations remain remarkably stable at levels consistent with 2 percent inflation. 2 after rising moderately last year, households'three - year - ahead inflation expectations are now back to where they were in january 2021, and one - yearahead inflation expectations have started to reverse the rise seen over the past year and a half. 3 the fomc's policy actions with inflation still high and indications of continued supply - demand imbalances, it is clear that monetary policy still has more work to do to bring inflation down to our 2 percent goal on a sustained basis. at its meeting last month, the fomc raised the target range for the federal funds rate to 4 - 1 / 4 to 4 - 1 / 2 percent, the seventh consecutive increase. the fomc's december 2022 summary of economic projections showed that a large majority of participants saw the federal funds rate reaching a level between 5 and 5 - 1 / 2 percent by the end of this year. the fomc statement indicated that " the committee anticipates that ongoing increases