paper 8846, march 2002. ) to date, the widening to record levels of the u. s. ratio of current account deficit to gdp has been, with the exception of the dollar ’ s exchange rate, seemingly uneventful. but i have little doubt that, should the rise in the deficit continue, at some point in the future further adjustments will be set in motion that will eventually slow and presumably reverse the rate of accumulation of net claims on u. s. residents. how much further can international financial intermediation stretch the capacity of world finance to move national savings across borders? a major inhibitor appears to be what economists call “ home bias. ” virtually all our trading partners share our inclination to invest a disproportionate percentage of domestic savings in domestic capital assets, irrespective of the differential rates of return. people seem to prefer to invest in familiar local businesses even where currency and country risks do not exist. for the united states, studies have shown that individual investors and even professional money managers have a slight preference for investments in their own communities and states. trust, so crucial an aspect of investing, is most likely to be fostered by the familiarity of local communities. as a consequence, home bias will likely continue to constrain the movement of world savings into its optimum use as capital investment, thus limiting the internationalization of financial intermediation and hence the growth of external assets and liabilities. 6 nonetheless, during the past decade, home bias has apparently declined significantly. for most of the earlier postwar era, the correlation between domestic saving rates and domestic investment rates across the world ’ s major trading partners, a conventional measure of home bias, was exceptionally high. 7 for oecd countries, the gdp - weighted correlation coefficient was 0. 97 in 1970. however, it fell from the still elevated 0. 96 in 1992 to less than 0. 8 in 2002. for oecd countries excluding the united states, the recent decline is even more pronounced. these declines, not surprisingly, mirror the rise in the differences between saving and investment or, equivalently, of the dispersion of current account balances over the same years. the decline in home bias doubtless reflects, in part, vast improvements in information and communication technologies that have broadened investors ’ scope to the point that foreign investment appears less exotic and risky. moreover, there has been an increased international tendency for financial systems to be more transparent, open, and supportive of strong

the aggregate wage distribution ( not shown ). economic research suggests that the pandemic recovery reversed around one - third of the increase in the aggregate ratio of the 90th percentile to the 10th percentile wage inequality since the 1980s. 6 these gains at the bottom of the income distribution also were reflected in the experience of different demographic groups, as shown in figure 12, with stronger wage growth for nonwhite workers, the dashed red line, relative to white workers, the solid black line, and, unlike even the prepandemic expansion, for workers with a high school education or less relative to those with a bachelor ’ s degree or more. unlike the noninflationary pre - pandemic expansion, however, these nominal wage gains coincided with rising prices, reducing many workers ’ actual purchasing power. real wage growth deflated by the personal consumption expenditures price index, which adjusts for the effect of inflation on workers ’ purchasing power, was negative for many workers in 2022, despite strong aggregate employment growth. further, the costs of inflation also vary across groups, and there is evidence that rising prices may hurt lower - income populations more. 7 this underscores the connection between the two components of the federal reserve ’ s dual mandate to promote both see autor, dube, and mcgrew et al. ( 2023 ). see orchard ( 2022 ). - 8maximum employment and stable prices, since the benefits of strong labor markets are eroded when accompanied by an unwelcome rise in inflation. the current labor market situation let me turn now to the labor market situation more recently. as the economy has recovered from the pandemic, the labor market has come into better balance. by mid2024, the gap between available jobs and available workers — i ’ ll show that figure again here — had essentially returned to where it was in 2019, reflecting both a decline in vacancies and improvements in labor supply. various indicators pointed to a labor market that was still tight, but no longer overheating. currently, the labor market remains solid, on balance, and inflation continues a bumpy descent toward the fomc ’ s 2 percent objective. layoff activity and initial claims for unemployment insurance, shown in figure 13, remain low by historical standards even as job openings have moved down to more normal levels. the unemployment rate appears to have leveled off close to what the median fomc participant currently sees as its long - run sustainable