fourth, there is evident need to improve the process for making long - term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy. bis central bankers ’ speeches in sum, the nation faces difficult and fundamental fiscal choices, which cannot be safely or responsibly postponed. returning to the discussion of the economic outlook, let me turn now to the prospects for inflation. prices of many commodities, notably oil, increased sharply earlier this year, as i noted, leading to higher retail gasoline and food prices. in addition, producers of other goods and services were able to pass through some of their higher input costs to their customers. separately, the global supply disruptions associated with the disaster in japan put upward pressure on prices of motor vehicles. as a result of these influences, inflation picked up during the first half of this year ; over that period, the price index for personal consumption expenditures rose at an annual rate of about 3 - 1 / 2 percent, compared with an average of less than 1 - 1 / 2 percent over the preceding two years. as the fomc anticipated, however, inflation has begun to moderate as these transitory influences wane. in particular, the prices of oil and many other commodities have either leveled off or have come down from their highs, and the step - up in automobile production has started to reduce pressures on the prices of cars and light trucks. importantly, the higher rate of inflation experienced so far this year does not appear to have become ingrained in the economy. longer - term inflation expectations have remained stable according to surveys of households and economic forecasters, and the five - year - forward measure of inflation compensation derived from yields on nominal and inflation - protected treasury securities suggests that inflation expectations among investors may have moved lower recently. in addition to the stability of longer - term inflation expectations, the substantial amount of resource slack in u. s. labor and product markets should continue to restrain inflationary pressures. in view of the deterioration in the economic outlook over the summer and the subdued inflation picture over the medium run, the fomc has taken several steps recently to provide additional policy accommodation. at the august meeting, the committee provided greater clarity about its outlook for the level of short - term interest rates by noting that economic conditions were likely to warrant exceptionally low levels for the federal funds rate at least through mid - 2013. and at our meeting in september, the committee announced that it intends to increase the average maturity of

more persistent factors also continue to restrain the pace of recovery. consequently, the federal open market committee ( fomc ) now expects a somewhat slower pace of economic growth over coming quarters than it did at the time of the june meeting, when committee participants most recently submitted economic forecasts. consumer behavior has both reflected and contributed to the slow pace of recovery. households have been very cautious in their spending decisions, as declines in house prices and in the values of financial assets have reduced household wealth, and many families continue to struggle with high debt burdens or reduced access to credit. probably the most significant factor depressing consumer confidence, however, has been the poor performance of the job market. over the summer, private payrolls rose by only about 100, 000 jobs per month on average – half of the rate posted earlier in the year. 1 meanwhile, state and local the figure of 100, 000 private jobs per month adjusts for the effects of the two - week strike by communications workers at verizon, which held down measured payrolls in august. bis central bankers ’ speeches governments have continued to shed jobs, as they have been doing for more than two years. with these weak gains in employment, the unemployment rate has held close to 9 percent since early this year. moreover, recent indicators, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead. other sectors of the economy are also contributing to the slower - than - expected rate of expansion. the housing sector has been a significant driver of recovery from most recessions in the united states since world war ii. this time, however, a number of factors – including the overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and the large number of “ underwater ” mortgages ( on which homeowners owe more than their homes are worth ) – have left the rate of new home construction at only about one - third of its average level in recent decades. in the financial sphere, as i noted, banking and financial conditions in the united states have improved significantly since the depths of the crisis. nonetheless, financial stresses persist. credit remains tight for many households, small businesses, and residential and commercial builders, in part because weaker balance sheets and income prospects have increased the perceived credit risk of many potential borrowers. we have also recently seen bouts of elevated volatility and risk aversion in financial markets