at the same time, the average coupon on outstanding corporate bonds remains considerably above rates on new debt issues, suggesting that firms are well positioned to cut their debt service burdens still further as outstanding bonds mature or are called. the net effect of these trends to date has been a decline in the ratio of business interest payments to net cash flow, a significant increase in the average maturity of liabilities, and a rise in the ratio of current assets to current liabilities. with business balance sheets having been strengthened and with investors notably more receptive to risk, the overall climate in credit markets has become more hospitable in recent months. specifically, improvements in forward - looking measures of default risk, a decline in actual defaults, and a moderation in the pace of debt - rating downgrades have prompted a marked narrowing of credit spreads and credit default swap premiums. that change in sentiment has extended even to the speculative - grade bond market, where issuance has revived considerably, even by lower - tier issuers that would have been hard - pressed to tap the capital markets over much of the last few years. banks, for their part, remain well - capitalized and willing lenders. in the past, such reductions in private yields and in the cost of capital faced by firms have been associated with rising capital spending. but as yet there is little evidence that the more accommodative financial environment has materially improved the willingness of top executives to increase capital investment. corporate executives and boards of directors are seemingly unclear, in the wake of the recent intense focus on corporate behavior, about how an increase in risk - taking on their part would be viewed by shareholders and regulators. as a result, business leaders have been quite circumspect about embarking on major new investment projects. moreover, still - ample capacity in some sectors and lingering uncertainty about the strength of prospective final sales have added to the reluctance to expand capital outlays. but should firms begin to perceive that the pickup in demand is durable, they doubtless would be more inclined to increase hiring and production, replenish depleted inventories, and bring new capital on line. these actions in turn would tend to further boost incomes and output. tentative signs suggest that this favorable dynamic may be beginning to take hold. industrial production, as i indicated earlier, seems to have stabilized, and various regional and national business surveys point to a recent firming in new orders. indeed, the backlog of unfilled

trading partners, also have extended the ongoing softness in the demand for u. s. goods and services. when the federal open market committee ( fomc ) met last month, with the economy not yet showing convincing signs of a sustained pickup in growth, and against the backdrop of our concerns about the implications of a possible substantial decline in inflation, we elected to ease policy another quarter - point. the fomc stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance. in the judgment of the committee, policy accommodation aimed at raising the growth of output, boosting the utilization of resources, and warding off unwelcome disinflation can be maintained for a considerable period without ultimately stoking inflationary pressures. * * * the prospects for a resumption of strong economic growth have been enhanced by steps taken in the private sector over the past couple of years to restructure and strengthen balance sheets. these changes, assisted by improved prices in asset markets, have left households and businesses better positioned than they were earlier to boost outlays as their wariness about the economic environment abates. nowhere has this process of balance sheet adjustment been more evident than in the household sector. on the asset side of the balance sheet, the decline in longer - term interest rates and diminished perceptions of credit risk in recent months have provided a substantial lift to the market value of nearly all major categories of household assets. most notably, historically low mortgage interest rates have helped to propel a solid advance in the value of the owner - occupied housing stock. and the lowered rate at which investors discount future business earnings has contributed to the substantial appreciation in broad equity price indexes this year, reversing a portion of their previous declines. in addition, reflecting growing confidence, households have been shifting the composition of their portfolios in favor of riskier assets. in recent months, equity mutual funds attracted sizable inflows following the redemptions recorded over much of the last year. moreover, strong inflows to corporate bond funds, particularly those specializing in speculative - grade securities, have provided further evidence of a renewed appetite for risk - taking among retail investors. on the liability side of the balance sheet, despite the significant increase in debt encouraged by higher asset values, lower interest rates have facilitated a restructuring of existing debt. households have taken advantage of new lows in mortgage interest rates to refinance debt on more favorable terms, to