of earlier cycles is instructive. in the past two u. s. expansions, gains in real wages in excess of productivity growth were not accompanied by a material rise in price inflation. of course, this time may be different, and as with growth, the job market could perform better or worse than the baseline outlook. however, for now, the increase in wages has been broadly consistent with the pickup in productivity growth that i have just discussed, and a rise in the stilllow rate of labor force participation among the prime - age population provides scope for the job market to strengthen further without generating inflationary pressures. this outlook for the labor market also reflects my view that the structural, or longer - run, rate of unemployment that is, the unemployment rate consistent with stable inflation over the longer run - - may be somewhat lower than i would have thought several years ago. what this means is that, even with today's very low unemployment rate, the labor market might not be as tight and inflationary pressures not as strong as i once would have thought. i am certainly not alone in this thinking. over the past several years, most fomc participants have been reducing their individual estimates of the longer - run level of the unemployment rate. the median assessment of fomc participants fell from around 5 - 1 / 2 percent five years ago to 4 - 1 / 2 percent in the projections published last month. outside estimates, such as those from the congressional budget office and the blue chip economic indicators survey, show a similar pattern of downward revisions. this makes sense. with unemployment falling and wage gains thus far in line with productivity and expected inflation, the traditional indicators of cost - push price pressure are not flashing red right now. both total and core personal consumption expenditure inflation are now running close to the fomc's 2 percent objective. when thinking about the inflation outlook, i pay attention to marketbased measures of inflation compensation from the tips ( treasury inflation - protected securities ) market as well as to surveys of inflation expectations. these " breakeven inflation rates " are simply the difference between yields on traditional treasury securities and those on tips with comparable maturities. while these market - based measures are not perfect and need to be adjusted for liquidity and term premium factors, they can provide a useful signal about market inflation expectations, which can be combined with signals from surveys of expected inflation to get a read on inflation expectations. breakeven inflation rates have only recently risen to a range that

motor vehicle sales continue to slip, however, reflecting, in part, the unwillingness of households and businesses, faced with today ’ s financial market conditions, to add to the stock of cars and trucks on the road at the pace observed over the past year. growth in the demand for consumer durables generally appears to be shifting down after the rapid gains of the past few years. this softening, in turn, has fed back into reduced demand from a large segment of the so - called old economy that supplies consumer durable markets. given the difficulty employers have had with building up their workforces in recent years, it is not surprising that the easing in demand growth since the spring has been reflected more in hours worked than jobs. as a consequence, labor markets have remained tight. but the recent increase in initial unemployment insurance claims and the level of insured unemployment may be an early harbinger of an easing of these conditions. in periods of transition from unsustainable to more modest rates of growth, an economy is obviously at increased risk of untoward events that would be readily absorbed in a period of boom. the sharp rise in energy prices, if sustained, is worrisome in this regard. as we learned from previous episodes, rising energy prices could engender risks to both inflation and economic activity. if accommodated by monetary policy, the jump in energy prices could spill over into general inflation and inflationary expectations, as was so evident in the 1970s. at the same time, the hike in the price of imported energy has acted, in effect, as a tax equivalent of roughly 1 % of national income. although there is as yet little evidence of the type of destabilizing inflationary pressures observed in the aftermath of previous oil price spikes or of exceptionally large restraint on consumer spending, middle east tensions have heightened such risks. the most significant effect to date from higher energy prices appears to be on profit margins, where corporate businesses, constrained by competitive market forces, have not been able to raise prices to fully offset energy cost increases. we estimate that owing to the rise in oil, natural gas, and electric power prices, energy costs of nonfinancial, nonenergy, corporations have increased at a 40 % annual rate since the spring of 1999. apparently, most of the increase has eaten into the margins of domestic corporations outside the energy sector. with equity prices weakening in response to reduced earnings from higher costs and a more moderate pace of sales, the “ wealth effect ” that spurred