as determined by such factors as productivity trends and growth of the labor force. although the rates of resource utilization that the economy can sustain cannot be known with any precision, it is clear that, after several years of above - trend growth, slack in resource utilization has been substantially reduced. as a consequence, a sustainable, non - inflationary expansion is likely to involve a modest reduction in the growth of economic activity from the rapid pace of the past three years to a pace more consistent with the rate of increase in the nation's underlying productive capacity. it bears emphasizing that, because productivity growth seems likely to remain strong, the productive capacity of our economy should expand over the next few years at a rate sufficient to support solid growth in real output. as i have noted, the anticipated moderation in economic growth now seems to be under way, although the recent erratic growth pattern complicates this assessment. that moderation appears most evident in the household sector. in particular, consumer spending, which makes up more than two - thirds of aggregate spending, grew rapidly during the first quarter but decelerated during the spring. one likely source of this deceleration was higher energy prices, which have adversely affected the purchasing power of households and weighed on consumer attitudes. outlays for residential construction, which have been at very high levels in recent years, rose further in the first quarter. more recently, however, the market for residential real estate has been cooling, as can be seen in the slowing of new and existing home sales and housing starts. some of the recent softening in housing starts may have resulted from the unusually favorable weather during the first quarter of the year, which pulled forward construction activity, but the slowing of the housing market appears to be more broad - based than can be explained by that factor alone. home prices, which have climbed at double - digit rates in recent years, still appear to be rising for the nation as a whole, though significantly less rapidly than before. these developments in the housing market are not particularly surprising, as the sustained run - up in housing prices, together with some increase in mortgage rates, has reduced affordability and thus the demand for new homes. the slowing of the housing market may restrain other forms of household spending as well. with homeowners no longer experiencing increases in the equity value of their homes at the rapid pace seen in the past few years, and with the recent declines in stock prices, increases in household net worth are likely to provide less of

capital positions were evaluated under a hypothetical stress scenario that involved a deep recession in the united states ( with unemployment reaching 13 percent ) and a notable decline in activity abroad, combined with sharp decreases in both domestic and global asset prices. this exercise was designed to capture both the direct and indirect exposures and vulnerabilities of u. s. financial institutions to the economic and financial stresses that might arise from a severe crisis in europe. the results show that a significant majority of the largest u. s. banks would continue to meet supervisory expectations for capital adequacy despite large projected losses in an extremely adverse hypothetical scenario. conclusion the recent reduction in financial stresses in europe is a welcome development for the united states, given the important trade and financial linkages connecting our economies. however, europe ’ s financial and economic situation remains difficult, and it is critical that the european leaders follow through on their policy commitments to ensure a lasting stabilization. i believe that our european counterparts understand the challenges and risks they face and are committed to take the necessary steps to address those issues. for our part, the federal reserve will continue to monitor the situation closely, work with our financial institutions and foreign counterparts to enhance the resilience of our financial see board of governors of the federal reserve system ( 2012 ), “ federal reserve announces summary results of latest round of bank stress tests, ” press release, march 13. bis central bankers ’ speeches system, and be ready to use our tools to help stabilize u. s. markets should the situation require such action. thank you. i would be pleased to respond to your questions. bis central bankers ’ speeches