most of the time. indeed the high quality of accounting standards in this country is one critical reason why capital markets are so efficient. but the lessons of the past few months remind us that accounting rules can be bent. for six years i was a member of the emerging issues task force of the financial accounting standards board. this is the rulemaking body that deals with divergence in practice. the eitf ’ s role is to provide timely financial reporting guidance where divergence in practice is developing. in the time i served on the eitf i came to understand that professionals could and did disagree on the best accounting standard to apply to a new type of transaction. that is at the very heart of the struggle to keep accounting standards current. the rapid pace of innovations that i just mentioned makes it impractical to have a rule in place to anticipate every business transaction. rather, the more complex and dynamic the world of business becomes, the more important it is that accounting be based on strong principles that are sufficiently robust to provide the framework for proper accounting of new types of transactions. in the course of their work, financial officers and auditors face conflicts between the needs of the client, which is the management and board of the corporation that engages them, and the professional ethical standards that outside parties - - investors, customers, and creditors - - expect from them. while auditors are engaged by boards of directors, the users of the auditors ’ opinions are these third parties. if outsiders did not need independent assessments of standardized financial information, companies could design their accounting systems in any way they desired to support their business objectives. but the effective functioning of u. s. capital markets requires that basic information on the financial condition and performance of the organization be prepared and presented in a consistent way so that outsiders using the information can compare different companies. thus, we need to insist on higher professional standards and not permit financial officers and auditors to benefit from “ gaming ” the rulesbased accounting standards that are increasing in complexity, particularly in the united states. the core of these basic accounting principles should be professional standards followed by every corporate accountant and every outside auditor that would insist that they can answer “ yes ” to these questions : “ does the accounting method selected faithfully represent the economics of the transaction? does the recognition, measurement and disclosure provide the user of financial reports with sufficient information to discern the nature of the significant transactions and risks of the organization? ” but rules alone do not guarantee good financial

. this is because temporary shocks to food and energy prices typically don ’ t translate into changes in inflationary pressure. however, if these shocks persist, they may have an effect on core inflation and, more generally, on the economic behavior of households and businesses. core inflation can be affected when the price changes are propagated along the production chain - say from oil prices to the prices of chemicals and ultimately to the prices of goods made with those chemicals. in addition, shocks to food and energy prices may affect inflation expectations. thus, we also pay attention to broader measures of inflation. all things considered, the scene appears to be set for a deceleration in prices. one contributing factor is likely to be the slowing in economic activity i already discussed, which should ease the overall pressure on resources. another important factor affecting the inflation outlook is household and the numbers cited here refer to the price index for personal consumption expenditures ( pce ), excluding food and energy, as published by the commerce department in the national income and product accounts. business expectations for inflation. as best we can judge, inflation expectations appear to be well contained : measures of longer - term inflation expectations, based on surveys and on a comparison of yields on nominal and inflation - indexed government debt, have remained within the ranges in which they have fluctuated in recent years. finally, the recent decline in energy prices, if sustained, should reduce cost pressures along the production chain. but a decline in the inflation rate is not assured. outside of the housing and automotive sectors, growth remains sound and labor markets remain tight, especially for skilled workers. the unemployment rate began to decline in the second half of 2003 and by the fourth quarter of last year stood at a relatively low 4 - 1 / 2 percent. with labor markets comparatively tight by historical standards, unit labor costs have accelerated over the past year, and firms may pass on some of these higher costs to consumers. however, strong business profit margins, which are currently well above their historical averages, could act as a shock absorber if cost strains were to intensify. all told, in my judgment, inflation appears poised to decelerate in coming months as energy prices stabilize and resource pressures ease. but the risks to that outlook seem tilted toward the upside. the federal reserve and consumer protection my remarks on the economic outlook discussed developments in housing markets, but now i would like to delve into a specific area of mortgage lending : consumer awareness and understanding of changes in mortgage markets. given