of the spectrum are policymakers who suspect that most firms and households form their expectations using something closer to simple rules of thumb based on recent history. under this alternative worldview, a string of adverse supply shocks is dangerous because it has the potential to cause rising inflation to become embedded in expectations. should this shift in expectations occur, the joshua gallin ( 2004 ), " the long - run relationship between house price and rents, " finance and economics discussion series 2004 - 50 ( washington : board of governors of the federal reserve system, september ). jonathan mccarthy and richard peach ( 2004 ), " are home prices the next ‘ bubble ’? " federal reserve bank of new york, economic policy review, vol. 10 ( december ), pp. 1 - 17. donald l. kohn ( 2006 ), " monetary policy and asset prices, " speech given at the european central bank colloquium held in honor of otmar issing, march 16. central bank would face a persistent inflation problem, one whose correction would likely require a prolonged period of tight monetary policy. in this less comfortable world, restoring price stability can involve a painful process of slow growth and elevated unemployment. of course, these considerations are more than a theoretical curiosity and help to explain the intense focus of central banks on inflation expectations. the marked rise in energy prices over the past few years led until recently to a rate of overall consumer price inflation notably above core inflation. however, the available measures of expectations - whether from surveys or financial markets - have shown longer - term expectations increasing very little, if at all, throughout this period, providing some assurance about the inflation outlook. however, this is an ex post assessment. as a policymaker, i would have been more confident in my ex ante judgment about the risk of expectations moving higher if we had had a better understanding of the determinants of expectations regarding prices and of the links between these expectations and the subsequent performance of inflation. more generally, the uncertainty we face about the process of expectations formation makes interpretation of the underlying correlations in the data challenging. this is no surprise : the rational expectations revolution begun by robert lucas more than thirty years ago started from the premise that it is impossible to move from reduced - form evidence to the underlying economic structure without understanding the evolution of expectations. much of the macroeconomic literature over the past few years has focused on how alternative assumptions about expectations may explain the patterns of correlations in aggregate data. however, the empirical weaknesses of the

we believe that the best ideas, policies and, ultimately, service to the public are the result of diverse perspectives, and from a staff that reflects the rich diversity of our nation. inclusion makes us stronger by providing all employees the assurance that they will be working in an environment that welcomes and values their differences, and that recognizes and rewards people according to the contributions they make in advancing the mission of the organization. that is not to say that we have all of the solutions, or that we do not have considerable progress to make. but we have made efforts in a number of areas. these efforts are consistent with the congressional directive to establish the office of minority and women inclusion, and as articulated in the board of governors'strategic plan for diversity and inclusion. 2 first, we have made a commitment, and have made progress, to make our institution more diverse. that includes efforts to bring greater diversity to the board of directors of our federal reserve banks and branches as well as to senior leadership in the federal reserve system. we have also worked to improve our internal culture. these efforts include re - establishing and strengthening employee resource groups. we are working to come up with codes of conduct including efforts to make our meetings more inclusive and set rules around behavior in seminars. we are also providing diversity and inclusion as well as bystander training to both new and 1 / 2 bis central bankers'speeches existing employees. second, we have broadened our reach in recruiting to provide a more diverse range of applicants the opportunity to apply for positions at the federal reserve — through strengthening our connections to schools that serve diverse populations, hiring an outreach specialist for these communities, establishing a stronger presence at career fairs for diverse students, and hosting career events for students to promote jobs in economics and finance at the federal reserve. third, we are working with high schools and universities to inspire students'interest in economics and finance. we are also working to provide them with the tools they need to enter these fields. this has included partnerships with local high schools to teach economics, and with a local historically black university, howard university, to teach and mentor students in economics and statistical analysis. this last initiative has led to students developing an interest and pursuing careers in economics, including as research assistants at the federal reserve, and several are currently employed at the board as research assistants. of course, these conferences are also an important part of addressing diversity and inclusion in central banking, and the economics and finance professions. i look forward to welcoming all of you to