politically driven removal of a significant part of iraq ’ s 2½ to 3 million barrels a day from global markets at a time when there exists so little available world excess capacity to replace it. even though the intensity of oil consumption is markedly below where it was thirty years ago, it still has the potential to alter the forces governing economic growth in the united states. to date, the spillover from the surge in oil prices has been modest. any effect on inflation expectations, at least as inferred from the behavior of long - term treasury inflation - indexed securities, has been virtually nil. moreover, despite some slowing that likely has been related in part to the bite from the so - called “ oil tax ” on household incomes, the growth of consumer spending has remained firm. but policymakers will need to be on the alert for oil - driven, indeed energy - driven, risks to our expansion. looking further ahead, some of those favorable factors that i discussed earlier - in particular, growing fiscal surpluses and accelerating productivity - remain in place, but presumably will not persist indefinitely. the mounting fiscal surpluses have been an important source of national saving, muting upward pressures on interest rates at a time of strong demand for private credit. by keeping the cost of capital lower than it otherwise would have been, the surpluses have contributed to capital deepening and faster growth of productivity. but i believe most of us harbor doubts about whether the dynamics of the political process, some of which have been on display in the current budgetary deliberations, will allow the surpluses to continue to grow. moreover, as i indicated in remarks at jackson hole in august, a tapering off of productivity acceleration is inevitable at some point in the future. when that occurs, even should the growth rate of productivity remain high, we could experience less benign readings on cost pressures if the tightness of labor markets persists. that said, as best we can judge, credible evidence that the rate of structural productivity growth has stopped increasing is still lacking. it is the continuing acceleration of productivity that, by allowing businesses to absorb rising compensation increases without incurring ever rising unit costs, has been so essential to containing price increases. we are observing some remarkable structural advances in our economy. central bankers have learned much about their implications. but, it will be essential for this learning process to continue if we are to recognize and respond effectively to the inevitable surprises placed in our path by a constantly evolving and highly dynamic economy.

of the effect also depends on the potential to reduce energy consumption as prices rise and on the degree to which other energy sources can be substituted for oil as relative prices change. most of the oil displacement was accomplished by 1985, within a few years of the peak in the relative price of energy. progress in reducing energy intensity generally has been far more modest in the last 15 years - not surprising, given the generally lower level of real oil prices after 1985. what has changed dramatically in recent years is the production side of oil, which is likely to be a substantial factor in determining the extent and duration of any oil - price spike. oil, in this regard, has truly become at least an associate member of the new economy. the development of seismic techniques and satellite surveillance to discover promising new oil reservoirs has more than doubled the drilling success rate for new field wildcat wells during the past decade. new techniques and the use of oil rigs that have more computer chips in them than most modern office buildings facilitate far deeper drilling of promising pools, especially offshore. the newer recovery techniques reportedly have raised the proportion of oil reserves eventually brought to the surface from a third to nearly a half in recent decades. one might expect that, as a consequence of what has been a dramatic change from the old hit - or - miss wildcat oil exploration and development of the past, the cost of developing new fields and, hence, the long - term marginal cost of new oil have declined. and, indeed, these costs have declined, but by less than might otherwise have been the case ; much of oil development innovation outside opec has been directed at overcoming an increasingly inhospitable and costly exploratory environment, the consequence of more than a century of draining the more immediately accessible sources of crude oil. one measure of the decline in recent years of the marginal cost of additions to oil availability is the downdrift in the prices of the most distant contracts for future delivery of light sweet crude oil. spot prices have soared and plunged, but for the most distant futures contracts - which cover a time frame long enough to seek, discover, drill and lift oil - prices generally moved lower over the past decade. the most distant futures prices fell from a bit more than $ 20 per barrel just before the gulf war to $ 17 to $ 18 a barrel a year ago. the current six - year futures contract has risen over the past year to about $ 21 per barrel. arguably, however, this rise is related less to