Indeed, throughout this period of high inflation, one of the bright spots is that various measures of longer-run inflation expectations have remained remarkably well anchored and consistent with our 2 percent target.2  Imbalances Endure Our most important policy tool is the setting of the target range for the federal funds rate, which influences demand for goods and services by affecting borrowing costs. So far, tighter monetary policy from the Federal Reserve and central banks around the world is helping to bring a better balance between supply and demand. Inflation has declined in a number of sectors, particularly for many categories of commodities and goods. In addition, the supply-chain bottlenecks that had constrained the supply of goods have largely dissipated. For example, the New York Fed's Global Supply Chain Pressure Index has declined to a level that indicates supply pressures are now actually somewhat lower than normal.3 I hear the same from business leaders from around the Federal Reserve's Second District, who confirm that supply chains have improved considerably. At the same time, data on rents for new leases provide early signs of slowing inflation for shelter. This is important because shelter inflation had been a significant driver of higher inflation over the past year. However, despite the moderation of inflation, imbalances endure, with overall demand still exceeding supply in the economy. This is seen in the inflation rate for core services excluding housing, which has been running around 4-1/2 percent since last August.
Major progress has been made in terms of fiscal consolidation and the enhancement of the euro area governance framework. But we are not there yet. Governments need to urgently implement their fiscal consolidation programmes and to accompany these with well-designed structural reforms in the labour and product markets. The new fiscal and macroeconomic rules of the European governance framework need to be implemented to the letter. And the crisis management mechanisms at the euro area level need to be designed so as to ensure financial stability in the euro area. 6  BIS central bankers’ speeches