##emic growth and repeated bouts of very low inflation and deflation. japan's experience re - emphasizes the importance of regulatory policies that may prevent feedback loops between asset price bubbles and credit provision. indeed, during the boom, japanese regulations that allowed banks to count as capital unrealized gains from equities may have contributed to banks'appetite for equities during the stock market run - up and to financial instability as the stock market collapsed. after the bursting of the bubble, policymakers did not quickly resolve the fragility of the banking sector, thereby allowing conditions to worsen as banks kept lending to inefficient, debt - ridden, so - called zombie firms. on the other hand, japan's experience does not support the need for preemptive monetary policy actions to deflate a bubble, as some commentators have suggested. 23 the tightening of monetary policy during the bubble period does not appear to have led to better economic outcomes. moreover, the boj did not reverse course sufficiently or rapidly enough in the aftermath of the crisis. 24 research suggests that it was the slow response of monetary policy to the deterioration in the economic outlook and fall in inflation following the bursting of the bubble that contributed to the onset of deflation. 25 the recent u. s. experience as highlighted in my introduction, the issues i have discussed today are especially salient because of the recent experience with house prices in the united states. it is too early to draw firm conclusions regarding all of the factors that have contributed to the rise and decline of house prices and the impact of these developments on our financial system and the macroeconomy. but the federal reserve and other government agencies have already begun to address some weaknesses that emerged during this period. for example, problems arose in recent years in the chain linking the origination of mortgages to their distribution to investors through structured investment products like mortgage - backed securities. underwriting standards became increasingly compromised at origination. in retrospect, the breakdown in underwriting can be linked to the incentives that the originate - to - distribute model, as implemented in this case, created for the originators. notably, the incentive structures often tied originator revenue to loan volume rather than to the quality of the loans being passed up the chain. this problem was exacerbated by the bubble in house prices : lenders began to ease standards as further appreciation in house prices was expected to ensure that risk was low, and investors failed to perform the research necessary

increasing at an average of nearly 400, 000 a month over the last several months. unemployment rose two tenths of a percent in august to 3. 7 percent, in part reflecting an increase in the labor force participation rate, but still stands at a very low level. the increase in participation was welcome news, but this rate is still far below that achieved before the pandemic, when unemployment was roughly as low as today. we are facing - 5worker shortages in many sectors of the economy. job openings have started to decline a bit but remain very elevated. these data confirm that the fed is hitting its full employment mandate, so all my attention is on bringing inflation down. inflation slowed in july, which was a very encouraging development. headline inflation for both the consumer price index and the index derived from personal consumption expenditures ( pce ) — the fed ’ s preferred measure — slowed, largely due to continuing declines in prices for gasoline and other petroleum products. excluding volatile energy and food prices, core inflation for these two indexes also stepped down from the rapid increases of earlier this year, but it is still too early to say that inflation is moving meaningfully and persistently downward. inflation is still widespread. for both headline and core inflation, at least 60 percent of the underlying categories of different goods and services increased by 3 percent or more. prices for housing services are elevated and still rising. core goods inflation continues to run well above its pre - pandemic level. inflation for services excluding housing has moved up this past year in part due to consumers shifting back to more normal activities outside the household as social distancing has eased. looking ahead, i will be focusing on a number of factors that will influence inflation. on housing services — rent and the so - called owners ’ equivalent rent — i expect to see sizable increases in this component of inflation for a while as the recent rise in new rentals makes its way into aggregate price measures. 2 in a speech in march, i noted that, based on various measures of asking rents, some analysts were predicting that the rate of recent increases in asking rents and new rental contracts are incorporated in aggregate price measures with a lag because many of the properties surveyed for the consumer price index housing survey do not have new rental contracts each month. in addition, the housing component of the official statistics is based on the average change over the previous six months. - 6rent inflation in the consumer price index could double in 2022, and so far it