First, with respect to banking supervision, the faster pace and increasing complexity of financial services mean that banking supervision has had to change its methods to rely more heavily on market forces as a means of regulating banks. For example, the Federal Reserve has become more focused on how individual institutions, including community banks, manage the risks of banking.
[Note 5] Figure 6 shows that demand shocks to an important extent explain these inflation surprises. [Note 6]  So now that I have elaborated on the risks to the inflation outlook, the logical question follows: how to bring it down? I would begin by recalling that we have already taken important steps.