, helped by the absence of significant imbalances and by an economic policy response which have contributed to shortening the recessionary bout and tempering its impact on employment. at the onset of 2001 inflation was on a rising path, influenced by various essentially temporary factors such as dearer oil prices, crises in the meat industry and the depreciation of the euro. its trajectory changed mid - year, partly following that of oil prices, and it fell to 2 % in december. although inflation stood above the 2 % level throughout the year, medium - term inflation expectations broadly converged towards levels consistent with price stability. this contributed to wage moderation, preventing the temporary rebound in prices from having a durable effect on inflation. thus, against a backdrop marked by the progressive slowdown in activity, by moderate cost pressures and by price expectations on the part of agents that coincided with the monetary authority ’ s targets, the inflation outlook improved as the year unfolded. the monetary policy stance, marked by the tightening carried out in 2000 in a very different macroeconomic setting, gradually became accommodative of the new circumstances and several interest rate cuts were applied, proving conducive to the economic recovery. i would like to underscore two different factors that were pivotal to the assessment of the inflation outlook and the intensity of the monetary policy response in 2001. the first was wage moderation, and the second the reaction by the economic authorities to the attacks on 11th september, particularly in the light of the sizable rise in economic uncertainty and the immediate deterioration of confidence levels. the firm, concerted response by the monetary authorities in the main economic areas softened the initial impact on financial markets and meant that the effects on the world economy were relatively short - lived, though sharp, and confined to specific sectors. broadly, the design of the euro area members'fiscal policies in 2001 prevented expansionary discretionary measures being adopted. such measures would have jeopardised the sustainability of recent fiscal consolidation achievements and, given the lag with which such measures operate, they could have had a counter - productive effect on the cyclical stability of the economies in the area. however, the available estimates of the structural budget balance show that, at the aggregate level, there was a slight deterioration last year as a result of the tax cuts applied in certain countries before the cyclical weakening had become apparent. further, fiscal results have shown that, in certain countries, not enough room for manoeuvre was available to absorb the

thing to do with your money is to leave it where it is, but our responsibility is to make sure the public knows that currency is readily available. and it is. we finished building up our currency inventory in august, and depository institutions are arranging to have a large amount of extra cash in their vaults as well. separately, the board has taken several steps to ensure bank and thrift customers continuous access to funding. first, we advised the industry to make the advance arrangements necessary to borrow at the discount window, and many have already done so. and we created an administrative structure to more easily serve the backup needs of credit unions. we also created a special liquidity facility to provide banks and thrift institutions access to funds at a predetermined price. this borrowing arrangement will be available as from 1 october. its creation sends a clear message : the fed will be there to provide liquidity should banks need it. that, in turn, will enable banks to offer their customers similar assurance. earlier this month, the federal reserve bank of new york announced several changes to its daily open - market procedures intended to ensure the smooth operation of financial markets around the century rollover. all of these actions have a common theme. they are meant to build confidence that the fed is determined to play its traditional role as a provider of liquidity in uncertain times. summary in sum, our systems are ready. we are working to build public confidence. we will be on the job constantly during the rollover period and we will be prepared for any problems that may arise. no one can guarantee the complete absence of isolated glitches, but americans should feel confident the federal reserve and our depository institutions have done everything that can be done to make the transition to the year 2000 as smooth as possible.