picked up for a wide range of other industries as well. that said, recent surveys and the continued, low level of labor force participation suggest that households remain concerned about a lack of employment opportunities, and we will have to wait and see whether this faster pace of hiring can be sustained. as you know, canada is the united states ’ largest trading partner, and hence trade provides an important link between our economies. indeed, u. s. exports to canada are rising briskly so far this year, albeit still not quite as fast as the rise in u. s. imports from canada. more generally, a surge in canadian exports has helped fuel the recovery in canada this year despite an appreciation of the canadian dollar. however, unlike the united states, canada is a net exporter of oil and other commodities and thus has also benefited, on balance, from the sustained rise in oil and other commodity prices this year. recent canadian data are consistent with robust domestic demand growth in the third quarter, and employment gains have recently been strong. over time, future improvements along these lines may also support higher demand for imports, which will in part come from the united states. turning to the outlook for u. s. inflation, the rise in crude oil prices - coupled with rising margins for gasoline and higher prices for natural gas - contributed to a 25 percent annual rate of increase in consumer energy prices over the first half of the year. and, although energy prices turned down briefly during the summer as gasoline margins returned to more normal levels, the latest indicators are pointing to significant increases in energy prices again this quarter. as a result, headline consumer price inflation - as measured by the personal consumption expenditures ( pce ) price index - rose at an annual rate of around 2 - 1 / 2 percent over the first three quarters of this year, up from 1 - 3 / 4 percent in each of the past three years. despite the rise in oil prices, core consumer prices have risen at a moderate pace in recent months after picking up early this year from last year ’ s very low rate. on average, core pce prices have increased at a 1 - 1 / 2 percent annual rate over the first three quarters of this year, up only slightly from a 1 - 1 / 4 percent increase over the four quarters of 2003. as with the real economy, the absence of a more significant effect from oil prices on core inflation reflects, in part, the smaller share of energy in firms ’ production processes. but in addition,

mark w olson : recent economic experience and outlook remarks by mr mark w olson, member of the board of governors of the us federal reserve system, at the fraser institute roundtable luncheon, toronto, 15 november 2004. * * * thank you for inviting me to speak to you today about my assessment of current economic conditions in the united states and what is required to maintain an economic environment conducive to growth, job creation, and price stability. i should note that my remarks today reflect my own views and do not necessarily represent those of my colleagues on the board of governors or in the federal reserve system. commentaries on the economy often focus too heavily on the latest weekly and daily data. to put today ’ s economic performance in a broader context, i would like to step back briefly and touch on some recent economic history. as you know, the latter half of the 1990s was a time of remarkable economic performance, fueled importantly by an investment boom that contributed to rapid growth in labor productivity. however, by late 2000, that boom had come to an end, and businesses abruptly curtailed capital spending - particularly for high - tech equipment. the cutback in spending occurred as expectations about the potential profitability of new investment opportunities turned down, and many companies, such as those in the telecommunications sector, found that they had invested too much in equipment and office space during the boom. with the sudden drop - off in business demand, inventories began to pile up, and producers cut production of all types of goods in early 2001. against this backdrop, the federal reserve reduced the target rate for the federal funds rate sharply over the course of 2001 to contain the weakness and head off a more serious deterioration following the terrorist attacks in september. this monetary policy stance, coupled with stimulative fiscal policy, was generally successful. in contrast to most u. s. recessions since world war ii, consumer spending and residential investment were both relatively well maintained during this period. even as firms cut employment and stock market losses eroded household wealth throughout 2001 and 2002, household spending was supported by tax cuts, low inflation, and low interest rates. consumers took advantage of falling mortgage rates to buy new homes, to refinance their existing mortgage debt, and to tap into their increasing home equity to pay off more expensive debt or to finance spending on other things. as a result, the recession in 2001 turned out to be quite shallow, and activity in 2002 recovered modestly even though businesses continued to cut spending on capital