to year with capital deepening, etc. updated estimates will be available january 26. comments 1. the cbo estimate of gdp is on a pre - benchmark - revision basis. given that the revisions raised gdp growth during the 1990s, this figure likely will be revised up on january 26. 6 / 99 date of estimate congressional budget office source estimates of nairu and potential gdp growth for 1999 table 1 these charts about whether the perceived imbalance is real and serious, but we can at least understand why concerns have been raised in each case. the chart for the stock market, figure 2. a, shows the price - to - earnings ratio for the s & p500 index, based on the trailing four - quarter earnings. the current p / e ratio of about 32 compares with an average of 16 since 1957 and a high before this expansion of 22. 3 in august 1987. the personal saving rate, charted in figure 2. b, has declined in this episode to a record low. the current account balance, pictured in figure 2. c, is measured as the ratio to nominal gross domestic product ( gdp ). this ratio has also declined to a record low. in figure 2. d, i have charted the ratio of debt service costs to disposable income for the household sector, a preferred measure of the household debt burden. it has been rising since the mid - 1990s but remains below the peak reached in the mid - 1980s. as i noted, none of these diagrams definitively demonstrate that there is an unsustainable imbalance. the point of the exercise is to show why some have worried that there might be. it would take a more detailed analysis than time permits to reach an informed judgment about the risks in each case. and when we were done with this more detailed analysis, we could reasonably expect that we would still be left with considerable uncertainty. common sources of recent developments what i do want to focus on this afternoon are possible common sources for the developments pictured in figure 2 and the relation of any imbalance between aggregate supply and demand to those developments. there are, i believe, some common sources of the developments pictured in figure 2. first, these variables are all cyclically sensitive. during expansions, equity prices tend to rise, although they often decline before a downturn in the economy. discerning a consistent pattern for the saving rate during an expansion from the chart is more difficult : too many other factors play a role. but regression analysis indicates that

same time, the very substantial fall in commodity prices seen since the middle of 2008 should support real disposable income, and thus consumption, in the period ahead. most recently, there have been tentative signs of stabilisation in some survey data, albeit at historically low levels. these indications, however, require confirmation on a broader basis. in the view of the governing council, the outlook for the economy remains surrounded by an exceptionally high degree of uncertainty. overall, risks to economic growth remain clearly on the downside. they relate mainly to the potential for a stronger impact on the real economy of the turmoil in financial markets, as well as to concerns about the emergence and intensification of protectionist pressures and to possible adverse developments in the world economy stemming from a disorderly correction of global imbalances. over time, the euro area should reap the benefit of the effects of significant policy measures that have been decided upon over recent months to deal with the financial turmoil. they should help to restore trust in the financial system and to ease constraints on credit supply to companies and households. in order to ensure that such measures effectively support a sustainable recovery, it is of the utmost importance that they remain focused and temporary in nature so as to maintain a stability - oriented and medium - term perspective in macroeconomic policy - making. with regard to price developments, annual hicp inflation continued to decline in january 2009, falling to 1. 1 %, according to eurostat ’ s flash estimate, from 1. 6 % in december 2008. while no detailed breakdown for hicp developments in january is available as yet, the decline in headline inflation observed since the middle of 2008 primarily reflects the sharp falls in global commodity prices over this period, owing mainly to weak global demand. looking ahead, lower commodity prices and the prospect of weak demand confirm our assessment of mid - january that inflationary pressures in the euro area are diminishing. owing mainly to base effects stemming from the past behaviour of energy prices, headline annual inflation rates are projected to decline further in the coming months, possibly reaching very low levels at mid - year. however, also owing to base effects stemming from past energy price developments, inflation rates are expected to increase again in the second half of the year. accordingly, it is likely that hicp inflation rates will fluctuate sharply during 2009. such short - term volatility is, however, not relevant from a monetary policy perspective. looking over the policy - relevant medium - term horizon,