For its part, the supervisory community is carefully monitoring the efforts of banks to follow through with the implementation of improved risk management practices for highly leveraged institutions. The Basel Committee intends to prepare a follow-up report on the progress banks are making. In my view, the degree of improvement will signal whether the industry has truly absorbed the lessons of the LTCM episode. The approach the Basel Committee has taken with respect to highly leveraged institutions mirrors its efforts in addressing other risk management issues. A primary aim of the Committee is to describe and promote prudent risk assessment and control practices by banks. By setting out the current state of the art in key areas, the Committee provides banks and their supervisors worldwide with the tools to measure industry progress toward the goal of effective risk management. In recent years, the Basel Committee has engaged in a sustained effort to develop and publicize sound practices in a variety of areas. These have included papers on such topics as: •  the management of credit risk;  •  loan accounting and credit risk disclosure;  •  guidance for managing foreign exchange settlement risk;  •  enhancing corporate governance in banking organizations;  •  a framework for internal control systems in banking organizations;  •  operational risk management; and  3  BIS Review 126/1999  •  risk management for electronic banking and electronic money activities.
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.