monetary policy is not on a pre - set path, and i will be closely monitoring the incoming data and their implications for the economic outlook. i will be looking for evidence that inflation is on a consistent and meaningful downward path as i consider whether further increases in the federal funds rate will be needed, and how long the federal funds rate will need to remain at a sufficiently restrictive level. i know that high inflation has been a hardship, especially for lower - and middle - income families, who spend the majority of their income on necessities. returning inflation to two percent will help american families focus on important decisions other than 1 / 3 bis - central bankers'speeches inflation. addressing high inflation will ensure that it is no longer a factor for spending and investment decisions and will help put the u. s. economy on a course of ongoing economic growth and rising standards of living. but i also know that higher interest rates have made it more difficult for many to get a loan, to buy a home or a car, and for businesses to invest and expand. i am interested to hear the ways in which inflation and higher interest rates are affecting the day - to - day lives of our participants today. i am also looking forward to learning about how the economy and the fed's policies are affecting lower - income workers and small businesses, the two subjects of today's fed listens event. over the past few years, for many, wage and salary increases have not kept up with inflation, and while that general pattern has improved recently, most workers still have not seen wage increases equal to price increases. for workers at the lower end of the wage spectrum, wage gains have been the strongest seen in decades. however, because necessities like groceries and gasoline make up a large share of their household expenses, lower - wage workers have been experiencing the effects of higher prices more acutely than others. we also know from history that a slower economy, with higher unemployment, tends to hit lower - income workers the hardest, so we must remain attuned to the fact that our efforts to reduce inflation have the potential to undermine wage gains and job security for lower - wage workers. should inflation remain at today's level, or increase again, lower - wage workers would continue to bear the brunt of these effects. small businesses are also more vulnerable in an economic slowdown than larger businesses, and i am watching carefully to see how they are dealing with both inflation and higher interest rates. despite high inflation and

donald l kohn : economic outlook remarks by mr donald l kohn, vice chairman of the board of governors of the us federal reserve system, at the money marketeers of new york university, new york, new york, 4 october 2006. * * * i am pleased to be with you tonight to discuss my views on current economic conditions and the economic outlook. these have been challenging times for economic forecasters and policymakers. since the summer of 2005, the economy has absorbed a wide variety of shocks - major hurricanes, ongoing geopolitical tensions, and substantial increases in energy prices - and has adapted to a rise in short - term interest rates to more normal levels. yet real gross domestic product ( gdp ) increased a respectable 3 - 1 / 2 percent from the second quarter of 2005 to the second quarter of 2006, and the unemployment rate fell to 4 - 3 / 4 percent. at the same time, however, headline consumer price inflation has been quite high, and an upward movement in core inflation has raised concerns about the persistence in price pressures, a very worrisome development from the point of view of a monetary policy maker. the economic outlook for the next few years will be importantly shaped by ongoing responses to these developments. reflecting those responses, economic activity has slowed noticeably over the course of the year, and inflation, though down from its level earlier this year, remains uncomfortably elevated. however, i expect that the continuing adjustment will be relatively benign overall : the economy will grow at a moderate pace for a while, somewhat below the rate of increase of its potential, and then growth will begin to strengthen. in addition, as the cost pressures from the run - up in energy and materials prices begin to play out, or perhaps even partly reverse, and as pressures on resources ease slightly, i think we will likely see much lower headline inflation and a gradual diminution of core consumer price inflation. i know that to some this story of a soft landing seems too good to be true - the triumph of hope over experience. one question is whether it is even feasible. can inflation pressures decrease with only a modest shortfall of economic growth from potential? and is it possible that a modest decline in resource utilization will not cumulate into something more serious, as it has tended to do in the past at least without a major adjustment of policy? my view is that this economy is capable of generating the type of favorable outcome that i have just sketched, but, as in any period of transition,