challenge is substantially more difficult in markets where there have been dramatic changes in the instruments involved, in the nature of the participants and in the structure of the markets. we tend to look more closely at things we can measure than those we cannot. we are drawn to approaches that offer the comfort of precision and tend to look past the wide band of uncertainty that surrounds those estimates. measuring these broader risks is harder today because the classic array of historical stress events drawn from the past 25 years of financial crises are probably even less valuable than they were as an illustration of how market dynamics might unfold today in response to similar changes in asset prices and credit losses. those past crises would likely cause less damage today, if they were to recur, because of the many changes in the structure of our financial system - namely, the greater dispersion of credit and market risk, the improvements in risk management, the size of the capital cushions, and the improvements in many parts of the payment and settlement infrastructure. but most crises come from the unanticipated. assessing a firm ’ s exposure to risk in the tail of the distribution requires, among other things, an evaluation of the impact of the failure of a major counterparty and the impact that failure might have on other counterparties and on market prices. it requires, for the largest institutions, an understanding of the constraints the firm may face in its ability to adjust positions or hedge against further losses without amplifying the shock. and it requires anticipating potentially adverse effects on market liquidity, as other market participants react to actual and anticipated losses. in the financial system we have today, with less risk concentrated in banks, the probability of systemic financial crises may be lower than in traditional bank - centered financial systems. and the increase in the diversity of nonbank financial institutions that hold risk may also serve as a stabilizing force in credit markets. but the greater relative importance of nonbank financial institutions also means that distress among these institutions has the potential to have a substantial impact on market behavior and liquidity. understanding these relationships is an important part of the risk management challenge for banks, even in a world where derivatives have helped spread risk more broadly. the innovations that have taken place in the credit derivatives market were driven to a significant degree by the losses experienced in past crises, but most of the growth in this market has occurred in relatively favorable overall economic and financial conditions. this wave of innovation in credit markets has occurred in an environment in which : • the price of

john c williams : a bedrock commitment to price stability remarks by mr john c williams, president and chief executive officer of the federal reserve bank of new york, at the2022 us hispanic chamber of commerce national conference, phoenix, arizona, 3 october 2022. * * * as prepared for delivery thank you for that kind introduction. i'm so pleased to join you today. as business leaders and business owners, you are integral to the u. s. economy. so, it's fitting for me to have this opportunity to talk to you about the state of our economy, as well as a topic that's on everyone's mind : inflation. from main street to wall street - and to liberty street, where the new york fed is headquartered - inflation is the no. 1 concern. clearly, inflation is far too high, and persistently high inflation undermines the ability of our economy to perform at its full potential. the federal reserve has two goals : maximum employment and price stability. history teaches us that price stability is essential to achieving maximum employment over the longer term. we at the federal reserve are therefore taking strong actions to restore price stability as a foundation for sustained economic prosperity. today i will talk about why high inflation broke out last year, how it has evolved, and why i am confident that we are taking the necessary actions to bring inflation down. but before i do, i will give the standard fed disclaimer that the views i express today are mine alone, and do not necessarily reflect those of the federal open market committee ( fomc ) or others in the federal reserve system. inflation's disparate impact the fomc's price stability objective is for inflation to average 2 percent over the longer run, as measured by the personal consumption expenditures price index. 1 in the three decades before the pandemic, this inflation rate averaged almost exactly 2 percent. but that changed dramatically last year, when inflation suddenly soared. it has reached fourdecade highs in recent months, and now stands at over 6 percent. high inflation spares no one. it makes it more expensive to feed families, heat homes, and pay rents. while everyone feels the pain, not everyone is affected equally. those who can least afford the essentials - like food, gas, and housing - suffer the most. inflation also has a disparate impact across ethnic groups. economists at the new york fed found that since 2021, black and hispanic households have faced higher inflation