production in the middle east, along with increased concerns about prospects in other oil - producing countries, are doubtless key factors behind the nearly $ 9 per barrel rise in distant crude oil futures since 2000. this run - up presumably reflects a broadening of demand for claims on oil inventories beyond traditional commercial buyers and sellers of crude oil and petroleum products. the marked rise in the net long positions of non - commercial investors in oil futures and options since may 2003 has increased net claims on an already diminished global level of commercial crude and product inventories. oil prices accordingly have surged. at some point, however, investors will have achieved the level of claims on oil that they seek. when that occurs, their demand will presumably stop rising, thus removing some of the current upward pressure on prices. nonetheless, the increased value of oil imports has been a net drain on purchasing power, spending, and production in the united states. moreover, higher oil prices, if they persist, are likely to boost core consumer prices, as well as the total price level, in this country. the recent modest declines in oil and natural gas prices may or may not signal a trend but are nonetheless welcome. * * * the end of deflationary fears and the onset of modest upward pressure on costs, coupled with a strengthening economic outlook in the united states, have driven long - term interest rates higher, which has spurred a marked shift in credit flows and has prompted many firms to focus on the possibility of further interest rate increases in developing their hedging strategies. the rise in rates, for example, has induced a dramatic fall in mortgage refinancing and, hence, has produced a pronounced rise in the duration of mortgage - backed securities ( mbs ). owing to the volume of the earlier wave of mortgage refinancing, there is now a paucity of existing mortgages at rates appreciably above current levels, implying that the extent of further duration hedging is likely to be quite modest. as a consequence of record levels of refinancing in the second half of 2002 and the first half of 2003 which, by our estimates, encompassed roughly 45 percent of the total value of home mortgages outstanding - mbs duration fell to exceptionally low levels. as mortgage and other long - term rates rebounded last summer, a consequence of rapidly improving economic conditions and the fading of deflationary concerns, refinancing fell sharply, removing most downward pressure on duration. holders of mbs endeavor

employment struggle to retrace lost ground. longer - lasting changes in labor force participation could make wage pressures more persistent and have implications for the assessment of maximum employment. tapering asset purchases since the middle of last year, the fed has been increasing its holdings of treasury securities and agency mortgage - backed securities by $ 120 billion a month to foster smooth market functioning and to support the economy by putting downward pressure on interest rates. conditions had improved considerably by the time we announced our forward guidance for asset purchases in december, but the unemployment rate remained at 6. 7 percent, near - term growth was being constrained by heightened social - distancing restrictions amid surging hospitalizations from covid - 19, and inflation was running - 4significantly below 2 percent. as we sit here today, demand for labor is strong, and unemployment has declined to 4. 8 percent. we have exceeded the previous high for real gross domestic product and are close to reaching the pre - covid trend. inflation, about which i will say more shortly, is running at more than twice the fomc ’ s longer - run goal. taking all of the evidence into account, i think it is clear that we have met the test of substantial further progress toward both our employment and our inflation mandates, and i would support a decision at our november meeting to start reducing these purchases and complete that process by the middle of next year. bear in mind that asset purchases are pressing down on the accelerator, adding each month to the amount of accommodation the fed is providing to the economy through downward pressure on longer - term interest rates. reducing purchases and ending them on this schedule is not monetary tightening, but a gradual reduction in the pace at which we are adding accommodation. monetary policy when the goals are not complementary a move to reduce the pace of asset purchases soon also is entirely consistent with the fomc ’ s plan to pursue our longer - run maximum - employment and price - stability goals, and our new monetary policy strategy, which we refer to as our framework. the forward guidance that we put in place for asset purchases was an operationalization of the new framework. last december, with inflation running well below 2 percent and unemployment still elevated, we committed to continue purchasing assets at least at the current pace until we had made substantial further progress toward our goals. in most situations, those goals are complementary. that is, high unemployment usually coincides - 5with subdued inflationary pressures. therefore, at the time, we did