with non - g10 supervisors. it is envisioned that the revised accord will be implemented in 2004. the role of a sound and stable macroeconomic environment a sound and stable macroeconomic environment is also crucial for financial stability, and more generally for promoting sustainable growth. the converse - - macroeconomic overheating - - raises the likelihood of an eventual crisis, first by promoting excessive, and eventually unsustainable, external and internal borrowing. the next step inevitably is the correction to the real economy, interest rates and / or the exchange rate, that can sharply worsen asset quality and expose the accumulated weaknesses in the financial system. role of central banks in promoting stability and growth a central bank ’ s most important role in achieving stable, long - term growth involves promoting price stability. achieving long - run price stability is a difficult and continuous challenge, as it requires constant efforts first to detect, and then to correct the building up of internal and external imbalances. moreover, because of time lags in policy effectiveness, authorities often have to take action based only on partial evidence, well before adverse symptoms are fully evident. the principal reward for forward - looking policy is that changes in policy, and the associated stresses they engender, are generally smaller and more easily assimilated by markets. the effectiveness of monetary policy naturally brings us to the question of monetary and exchange rate regimes. a great deal has been said in various forums about the choice of monetary and exchange rate regimes. i believe it is crucial that there be consistency between a country ’ s choice of currency regime and its other policies. there is no " right " regime that applies to all cases and all points in time. experience has shown that no currency arrangement can compensate indefinitely for imperfections elsewhere in an economy, such as weaknesses in financial supervision, an excessively loose fiscal stance, or inflexible wages and prices. furthermore, no exchange rate regime can offer full insulation from cross - market spillovers, particularly where the free movement of capital is allowed. nevertheless, certain policy combinations can make things far more dangerous. fixed, but adjustable, regimes look to be particularly fraught with perils when combined with shortcomings elsewhere, not the least of which are the severe after - effects that always seem to follow their forced abandonment. as you are aware, much of the emerging world has moved toward floating rates in recent years. for thailand and the other countries that have made the change in east asia, it would appear that the new

lowest levels they have been in well over a decade. household net worth, expressed as a percent of disposable income, has increased back to its average of the previous decade, reflecting rising equity and home prices and declining liabilities. banks are beginning to ease credit standards somewhat after a prolonged period of tightness. as a result, we are now experiencing a fairly typical cyclical recovery of consumer spending on durable goods. for example, light - weight motor vehicles sold at a seasonally - adjusted annual rate of 15. 3 million in may, not far from the 16. 1 million sales in 2007. similarly, after five years in which housing production was well below what is consistent with underlying demographic trends, it now appears that we have worked off the excess supply of housing built up during the boom years of the last decade. housing starts and sales are now on a clear upward trend, and a widely followed national home price index is up around bis central bankers ’ speeches 12 percent over the twelve months ending in april. 1 indeed, anecdotal reports suggest that this higher - than - expected increase in home prices is due to a lack of homes for sale. unfortunately, the improvements in consumer spending on durable goods and housing are not yet showing through in the overall gdp growth rate due to the significant headwinds that we continue to face. first, federal fiscal policy has recently become quite contractionary. estimates from the congressional budget office ( cbo ) indicate that this fiscal restraint is on the order of 1. 75 percentage points of potential gdp this year. in the period since 1960, there have been only two previous episodes of fiscal contraction of this order of magnitude – 1969 and 1987 – both of which occurred when the economy was on a more solid footing than it is today. second, the euro area is experiencing a protracted recession and growth in many of the largest emerging economies has slowed. this has resulted in a very sharp slowing of u. s. exports, with an associated slowing in production and employment growth in the u. s. manufacturing sector. thus, i continue to see the economy as being in a tug - of - war between fiscal drag and underlying fundamental improvement, with a great deal of uncertainty over which force will prevail in the near - term. this tug - of - war is clearly seen in the monthly employment data. over april and may, the average monthly gain in employment in the private service - providing sector has been well maintained at 175, 000. in