of our business contacts across the nation report greater success in passing these cost increases through to customers, including other business customers. judging from a few months of data, which is always risky, consumers may also be experiencing a slightly faster rate of increase in prices, even excluding the effects of rising energy prices. the direct contribution of rising commodity, energy, and other import prices to consumer inflation is likely to lessen considerably, however. commodity price increases have slowed ; the dollar has flattened out in recent months, which should damp import price increases ; and, if they conform to the expectations implicit in futures markets, oil prices should level off and then drop back a bit. but the indirect effects of these sorts of price increases are still a potential concern. to contain inflation pressures, upward adjustments to the levels of these prices must not get built into higher inflation expectations. a rise in inflation expectations would induce people to seek protection against an expected erosion of their purchasing power by raising prices and wages even faster. the evidence regarding inflation expectations has been mixed. since last fall, expectations of inflation over the next year or so have risen notably. however, surveys and readings from financial markets indicate that expectations for inflation rates several years out remain stable ; in fact they have not changed materially for several years. people apparently view the near - term changes in inflation as temporary, perhaps associated with rising energy prices. given that perspective, they are less likely to change their behavior in labor and product markets in ways that perpetuate short - term variations in inflation. over time, both inflation and inflation expectations will be determined not by adjustments of particular prices but by fundamental factors - the competitive environment in labor and product markets that in turn reflects the extent of resource utilization, and the pace of productivity growth and its effect on costs. the recent news on both fronts suggests that inflation pressures will remain contained, but substantial uncertainty surrounds that outlook. as i noted earlier, resource utilization has risen substantially as the economy has expanded. naturally, as the margin of underutilized labor and capital is drawn down, some resources - particular skills in labor markets and certain goods and services - come into short supply. but, judging from aggregate measures of wages and labor compensation, the economy is still operating a little below its long - run sustainable level of production. the growth of compensation in 2004 was not much different from that in 2003 ; some measures registered a little faster growth, some a little slower. these flat compensation gains occurred along with an erosion of purchasing power from rising

##cipated economic shocks. over the last few years, the fiscal authorities have cut federal spending and raised taxes, and our congressional budget office estimates that these fiscal headwinds will reduce real gdp growth by about 1. 5 percentage points this year from what it otherwise would have been. nevertheless, as a nation, we have not yet addressed in a fundamental way our longer - term budget challenges, particularly those associated with federal health - care programs. so i have no doubt that fiscal policy issues will retain an important and highly contentious place on the political agenda for many years here in the united states, as in europe. i will turn for a moment to monetary policy. the congress has tasked the federal reserve with conducting monetary policy to foster stable prices and full employment. today, inflation is well below our 2 percent longer - term objective, as measured by prices for personal consumption expenditures. and although the unemployment rate has declined notably since its peak in 2010, it remains well above our estimate of a longer - run, more normal level. i expect that inflation will return gradually to our 2 percent objective, and that we will continue to make progress in reducing unemployment. in the meantime, the case for continued support for our economy from monetary policy remains strong. views expressed in this speech are mine and may not represent those of the fomc or any of its members. bis central bankers ’ speeches with these fiscal headwinds and the lingering effects of the recession, growth has remained in the range of 2 percent since 2009. but today, our private sector shows real signs of underlying improvement. auto sales are strong, as is activity in our energy sector. our housing market, which was at the heart of the crisis, is now recovering strongly. house prices are rising, and that is supporting improvement in household net worth and consumer attitudes. homebuilders are responding to this price signal with rising housing starts, which will support job growth. together, these and other factors give grounds to hope for the kind of self - reinforcing cycle of economic growth that we have been waiting to see. and as our economy has gradually improved, it has become possible, and appropriate, for the federal reserve to provide clearer guidance on the path of monetary policy. in all likelihood, this path will involve continued support from accommodative monetary policy for quite some time. meanwhile, financial regulators around the world are engaged in a historic and sweeping renovation of the global financial architecture. the scope of this global regulatory project is enormous