equipment and rewritten software that were put in place by the end of 1999 seem to have greatly exceeded expectations both in terms of longevity and associated productivity gains. we continue to hear from businesses that they have been able to extend the useful service life of this equipment and to reap additional productivity gains by fine - tuning their automation systems. although this extended replacement and upgrade cycle has helped to support the profitability of technology - consuming businesses, it obviously has been bad for the bottom line of the producers of these high - tech goods and services. although the boom - bust in capital spending was a unique feature of the most recent business cycle, the u. s. economy was also hit by the terrorist attacks of 2001, the corporate governance scandals of 2002, and the 2003 war in iraq. in hindsight, it is clear that such an uncertain and risky environment was not conducive either to the creation of new jobs or to the expansion of capacity. indeed, i am amazed that the u. s. economy could cope with such a severe sequence of negative economic shocks without even greater economic pain. that, to me, is testimony to the underlying strength and flexibility of our economic system. current conditions given the disappointments of the past two years, what do i see today in the economic data that makes me think that the economy has more likely than not turned the corner? the rate of growth of real gdp in the third quarter was impressive, and even more so, when you look at the contributions of final demand. the household sector has been the driving force in this expansion. for example, in the third quarter, real personal consumption expenditures increased at an annual rate of 6½ percent, while real residential investment surged 20 percent. last quarter ’ s strength in consumer spending was fueled by the midyear tax cuts, the waning influence of negative wealth effects from the past slide in equity prices, and some improvement in consumer sentiment from the war - related lows registered in march. in addition, very generous incentives on autos and light trucks boosted light vehicle sales to annual rate of 17½ million units in the third quarter. after such substantial increases last quarter, it has not been surprising that consumer spending has softened as we moved into the fourth quarter. still, the fundamental determinants of consumer spending remain favorable, and consumer sentiment is increasingly upbeat. housing markets remain very strong even though mortgage rates have moved up somewhat from the very low levels seen at the beginning of the summer. single - family housing starts

toward pre - pandemic levels. indeed, the labor force participation rate of women in their prime working years reached an all - time high in june. demand for labor has moderated as well. job openings remain high but are trending lower. payroll job growth has slowed significantly. total hours worked has been flat over the past six months, and the average workweek has declined to the lower end of its pre - pandemic range, reflecting a gradual normalization in labor market conditions ( figure 5 ). this rebalancing has eased wage pressures. wage growth across a range of measures continues to slow, albeit gradually ( figure 6 ). while nominal wage growth - 7must ultimately slow to a rate that is consistent with 2 percent inflation, what matters for households is real wage growth. even as nominal wage growth has slowed, real wage growth has been increasing as inflation has fallen. we expect this labor market rebalancing to continue. evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response. uncertainty and risk management along the path forward two percent is and will remain our inflation target. we are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to that level over time. it is challenging, of course, to know in real time when such a stance has been achieved. there are some challenges that are common to all tightening cycles. for example, real interest rates are now positive and well above mainstream estimates of the neutral policy rate. we see the current stance of policy as restrictive, putting downward pressure on economic activity, hiring, and inflation. but we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint. that assessment is further complicated by uncertainty about the duration of the lags with which monetary tightening affects economic activity and especially inflation. since the symposium a year ago, the committee has raised the policy rate by 300 basis points, including 100 basis points over the past seven months. and we have substantially reduced the size of our securities holdings. the wide range of estimates of these lags suggests that there may be significant further drag in the pipeline. beyond these traditional sources of policy uncertainty, the supply and demand dislocations unique to this cycle raise further complications through their effects on - 8inflation and labor market dynamics. for example, so far, job openings have declined substantially without increasing unemployment — a highly