clearly contributed to a fending off, if only temporarily, of some of the pressures on our balance of payments. the stresses on the global savings pool resulting from the excess of domestic private investment demands over domestic private saving have been mitigated by the large federal budget surpluses that have developed of late. in addition, by substantially augmenting national saving, these budget surpluses have kept real interest rates at levels lower than they would have been otherwise. this development has helped foster the investment boom that in recent years has contributed greatly to the strengthening of us productivity and economic growth. the congress and the administration have wisely avoided steps that would materially reduce these budget surpluses. continued fiscal discipline will contribute to maintaining robust expansion of the american economy in the future. just as there is a limit to our reliance on foreign saving, so is there a limit to the continuing drain on our unused labor resources. despite the ever - tightening labor market, as yet, gains in compensation per hour are not significantly outstripping gains in productivity. but as i have argued previously, should labor markets continue to tighten, short of a repeal of the law of supply and demand, labor costs eventually would have to accelerate to levels threatening price stability and our continuing economic expansion. the more modest pace of increase in domestic final spending in recent months suggests that aggregate demand may be moving closer into line with the rate of advance in the economy ’ s potential, given our continued impressive productivity growth. should these trends toward supply and demand balance persist, the ongoing need for ever - rising imports and for a further draining of our limited labor resources should ease or perhaps even end. should this favorable outcome prevail, the immediate threat to our prosperity from growing imbalances in our economy would abate. but as i indicated earlier, it is much too soon to conclude that these concerns are behind us. we cannot yet be sure that the slower expansion of domestic final demand, at a pace more in line with potential supply, will persist. even if the growth rates of demand and potential supply move into better balance, there is still uncertainty about whether the current level of labor resource utilization can be maintained without generating increased cost and price pressures. as i have already noted, to date costs have been held in check by productivity gains. but at the same time, inflation has picked up - even the core measures that do not include energy prices directly. higher rates of core inflation may mostly reflect the indirect effects of energy prices, but the federal reserve

financial institutions in addressing these challenges, the federal reserve recently issued guidance in 2008 clarifying its expectations regarding firm - wide compliance risk management and oversight for both prudential and consumer protection supervision in complex risk management programs and oversight at large banking organizations with complex compliance profiles. further, federal reserve consumer compliance examiners routinely participate in the review and assessment of the adequacy of large bank holding company compliance risk management programs. in addition to its own supervisory efforts related to bank holding companies, the federal reserve, along with the office of thrift supervision, the federal trade commission, and a number of state authorities, recently completed a pilot consumer protection compliance review as part of an interagency project to enhance the supervision of subprime mortgage lenders. under the pilot project, the agencies coordinated to conduct consumer - protection compliance reviews at selected entities with significant subprime mortgage operations. the reviews included independent state - licensed mortgage lenders, nondepository mortgage lending subsidiaries of bank and thrift holding companies, and mortgage brokers doing business with or serving as agents of these entities. these reviews included targeted evaluations of mortgage underwriting standards, risk management strategies, and compliance with certain consumer protection laws. we are currently assessing the results of the pilot project. the results will guide the board's decisionmaking as to how it may supervise these entities in the future. focus on fair lending enforcement although the federal reserve's fair lending enforcement program is not intended to detect mortgage fraud, it is a vital component of the federal reserve's efforts to ensure fair access to responsible credit. the federal reserve is committed to ensuring that every bank it supervises complies fully with the federal fair lending laws, the ecoa and the fair housing act. every consumer compliance examination includes an evaluation of the bank's fair lending compliance program, as well as an assessment of the bank's fair lending risk across all types of lending, including mortgage lending. examiners also test the institution's actual lending record for specific types of discrimination, such as pricing discrimination in mortgage lending. a specialized fair lending enforcement section on the board's staff works closely with staff at the 12 reserve banks across the country to provide guidance on fair lending matters and to ensure that the fair lending laws are enforced rigorously. when examiners find fair lending violations, the board takes appropriate supervisory action. if we have reason to believe that an institution has engaged in a pattern or practice of discrimination under the ecoa, the board