ben s bernanke : comments on the outlook for the us economy and monetary policy remarks by mr ben s bernanke, chairman of the board of governors of the us federal reserve system, for the panel discussion “ comments on the outlook for the u. s. economy and monetary policy ” at the international monetary conference, washington dc, 5 june 2006. * * * i am pleased to be here this afternoon to participate in the international monetary conference. in my remarks, i will provide a brief update of the economic outlook for the united states and discuss the implications of that outlook for monetary policy. it is reasonably clear that the u. s. economy is entering a period of transition. for the past three years or so, economic growth in the united states has been robust, reflecting both the ongoing reemployment of underutilized resources as well as the expansion of the economy ’ s underlying productive potential, as determined by factors such as productivity trends and the growth of the labor force. although we cannot ascertain the precise rates of resource utilization that the economy can sustain, we can have little doubt that, after three years of above - trend growth, slack has been substantially reduced. as a consequence, a sustainable, non - inflationary expansion is likely to involve some moderation in the growth of economic activity to a rate more consistent with the expansion of the nation ’ s underlying productive capacity. it bears emphasizing that productivity growth seems likely to remain strong, supported by the diffusion of new technologies, capital investment, and the creative energies of businesses and workers. thus, productive capacity should continue to expand over the next few years at a rate consistent with solid growth of real output. real gross domestic product grew rapidly in the first quarter of this year, but the anticipated moderation of economic growth seems now to be under way. consumer spending, which makes up more than two - thirds of total spending, has decelerated noticeably in recent months. one source of this deceleration is higher energy prices, which have had an adverse impact on real household incomes and weighed on consumer attitudes. as had been expected, recent readings also indicate that the housing market is cooling, partly in response to increases in mortgage rates. to be sure, the data on home sales and construction have been somewhat erratic from month to month, reflecting weather conditions, statistical noise, and other factors. however, overall, housing activity has softened relative to the high levels of last summer, and the rate of house - price appreciation

appears to have lessened. a slowing of the real estate market will likely have the effect of restraining other forms of household spending as well, as homeowners no longer experience increases in the equity value of their homes at the rapid pace seen in recent years. gains in payroll employment in recent months have been smaller than their average of the past couple of years, and initial claims for unemployment insurance have edged up. these developments are consistent with the softening in the pace of overall economic activity that seems to be under way. that said, going forward, relatively low unemployment and rising disposable incomes may counter to some extent the factors tending to restrain household spending. although spending by the household sector is showing signs of moderation, other sectors of the economy retain considerable momentum. according to the available data, business investment appears to have risen briskly, on net, so far this year. in particular, investment in nonresidential structures, which had been weak since 2001, seems to have picked up appreciably, raising the possibility that increased nonresidential construction may absorb some of the resources released by the slowing housing sector. spending on equipment and software is also on a strong upward trend, and backlogs of orders for capital goods are still rising. business investment is being supported by high rates of profitability and capacity utilization. credit conditions for businesses are favorable : although market participants appear to have become more attuned to risks in recent weeks, corporate bond spreads remain low, and banks are well capitalized and willing to lend. globally, output growth appears poised to exceed 4 percent for the fourth consecutive year - - a strong performance that will support the u. s. economy by continuing to stimulate our exports of goods and services. the buoyant global economy does present some challenges, however. in particular, the increased world demand for crude oil and other primary commodities, together with the limited ability of suppliers to expand capacity in the short run, has led to substantial increases in the global prices of those goods. those price increases are a partial offset to the forces supporting global growth and are also a source of inflationary pressure. longstanding concerns about global imbalances remain with us as well. along with greater national saving in the united states, increased domestic demand in countries with current account surpluses and a greater flexibility of exchange rates more broadly would help to reduce those imbalances over time. should u. s. economic growth moderate as expected, sustaining the global expansion will