a true cost - of - living index would reflect this value and its implication for the true rate of growth of the cost of living. the cpi does not reflect it, and accordingly fails to capture a significant offset to price rises in other products. deriving an estimate of this value and building it into the cpi will not be an easy undertaking. but conceptually, it is unquestionably the right direction to be heading, and some recent research suggests that it could measurably affect the index. over time, we will need to investigate alternative sources of data. already, there is interesting work being done to develop techniques for processing data collected from bar - code scanners at the check - out counter. scanner data will allow the bls to track not just a small sample of products, but virtually the entire universe of products in selected lines of business and, perhaps most importantly, virtually the universe of transactions, regardless of whether those transactions happen on a weekday, at night, or on a holiday. we should also move to improve our understanding of the value that consumers place on their own time. absent such knowledge, it will be impossible for the bls to estimate the value of many goods and services that mainly serve to enhance convenience and save time. finally, we will have to attempt to build an understanding of why consumers shop at the places they do : what characteristics of an outlet are important, and how much so? location, hours of operation, inventory, and quality of service all are likely influences on the value that consumers place on their shopping experience, and all will be important in helping the bls to develop a more sophisticated statistical method for dealing with the appearance of new consumer outlets, including those that operate over the internet. even if the bls moves aggressively, some upward bias will almost surely remain in the cpi, at least for the next several years. two years ago, in testimony before this committee, i suggested that a workable structure for dealing with this situation might involve a two - track approach. that suggestion still seems to me to make sense. the first track would involve action by the bls to address those aspects of the bias that can be dealt with in relatively short order, say within the next year. the second track would involve the establishment of an independent national commission to set annual cost - of - living adjustment factors for federal receipt and outlay programs. the commission would examine available evidence on a periodic basis, and estimate the bias in the cpi taking into account both

a necessary first step to updating the economic outlook after the storms. finally, i would like to talk about the macroeconomic consequences of sharply higher energy prices that, if futures markets are an accurate guide, appear likely to persist long after rebuilding has been completed. the economy before the hurricanes before the hurricanes, economic activity appeared to have had considerable near - term momentum. payroll employment continued to increase through august, and other indicators suggested that further gains in production and sales were in train during july and august. consumer spending was growing briskly despite rapidly rising energy prices. sales of light motor vehicles were especially robust - - the result of the " employee pricing " plans offered by the major automakers. new residential construction remained at or near historically high levels through the summer, as did home sales. in contrast, business investment appeared to have lost a bit of steam. on net, real gross domestic product ( gdp ) looked likely to accelerate somewhat in the third and fourth quarters from the 3 - 1 / 2 percent annual rate registered in the first half of the year. on the price side of the ledger, consumer price inflation was moving up in response to the direct effects of higher energy prices. crude oil prices continued to rise before the storms hit as the growth in world demand for refined petroleum products further outstripped the growth of world supply. meanwhile, the readings on core consumer price inflation - - that is consumer price inflation excluding the direct effects of energy and food prices - - had been favorable, coming in well below the more - elevated pace seen earlier in 2005. of course, some of this slowdown in core price inflation was attributable to the temporary effects of the employee - pricing programs for light vehicles. and 1 / 5 higher energy costs were expected to place continued upward pressure on the prices of other goods and services. in this environment of somewhat faster growth in aggregate spending and greater upward pressure on prices, the federal open market committee ( fomc ) raised its target for the federal funds rate to 3 - 1 / 2 percent in early august. at the same time, the committee reiterated its belief that, with the appropriate monetary policy actions, the upside and downside risks to the outlook for sustainable economic growth and price stability were roughly equal and that the removal of monetary accommodation could proceed at a " measured pace. " thus, before the hurricanes, the outlook was relatively benign : continued moderate economic growth accompanied by little change in the underlying pace of core inflation. there were, of course, risks