expectations of future interest rates as well as the amount of compensation demanded by investors for the risk of unanticipated movements in real interest rates and inflation - - that is, the term premium. by historical standards, the term premium appears to have come down significantly in recent years and to be quite low. a flat yield curve resulting from low term premiums should have quite different implications for future growth than would a flat yield curve resulting from tight monetary policy. indeed, an exogenous decline in term premiums would make financial conditions more accommodative and would, other things being equal, be followed by higher growth. to account for these developments, an estimate of the term premium can be added to a simple regression model of the relationship between real gdp growth and the slope of the yield curve. forecasts of future real gdp growth from this extended model are higher than those from models that include only the slope of the yield curve. and the forecasts from this extended model currently are very close to the private - sector consensus forecast. thus, we have reasons to believe that the current configuration of the term structure is not signaling an economic downturn. at the same time, the amount of economic stimulus arising from low long - term rates is probably not especially large. indeed, low long - term rates may be signaling relatively low demand for capital around the world relative to saving, which in turn may reflect a lack of sufficiently attractive investment opportunities. for example, in the united states, the nominal share of business fixed investment in gdp has risen recently only to about its long - run average - - a level arguably somewhat lower than might be expected given the low level of long - term interest rates. because interest rates equilibrate the supply and demand of capital, an excess of desired saving relative to desired investment would tend, all else equal, to hold down long - term rates. in turn, low rates have stimulated activity in areas outside of business investment : housing has been boosted significantly, and consumer spending may also have received some additional impetus. some risks to the outlook all told, the u. s. economic expansion appears to be solidly on track. nevertheless, the outlook for real activity faces a number of significant risks, including the possibility that house prices and construction could retrench sharply and that energy prices could rise significantly further. housing construction has been a significant source of strength in this expansion, and consequently, some analysts have suggested that a correction in this sector could take a big bite

house prices : house prices have tended to reach a maximum near business cycle peaks, with real gdp growth slowing during the first year or so after house prices peak. 1 alan g. ahearne, john ammer, brian m. doyle, linda s. kole, and robert f. martin ( 2005 ), " house prices and monetary policy : a cross - country study, " international finance discussion papers 2005 - 841 ( washington : board of governors of the federal reserve system, september ). given the limits of what we know about the future path of housing prices and about the implications of any particular house - price scenario for real activity, the federal reserve will have to continue monitoring this area closely. further increases in energy prices are another risk to the economic outlook. the spot price of west texas intermediate crude oil rose from around $ 30 per barrel in december 2002 to around $ 65 per barrel in mid - august 2005, shortly before hurricanes katrina and rita made landfall. since the storms hit, prices have fluctuated widely in response to developments in both domestic and foreign oil markets and recently stood a bit below pre - katrina levels. over the same time period, prices of fardated futures contracts have also risen a substantial amount. as oil prices have pushed higher since late 2003, prices of natural gas also have trended up sharply. and storm - related disruptions to natural gas production as well as weather patterns this winter have caused considerable volatility in natural gas prices. economic theory suggests that energy price hikes of this magnitude should have an important contractionary effect on the economy by reducing the purchasing power of households and holding down business profits outside the energy sector. persistently higher oil prices also likely reduce labor productivity and potential output over time as firms adjust their production processes to use less energy. as for the reduction in aggregate demand, higher energy prices increase the bill for imported oil and natural gas, which can be viewed as a " tax " on u. s. residents by foreign energy producers, thereby holding down aggregate demand. given the rise in energy prices since 2003, the import " tax " has risen more than $ 150 billion annually. although they are imprecise, simulations from the federal reserve board staff's large - scale econometric model, which account for these effects, suggest that increases in spot and futures prices of energy from late 2003 to the present subtracted a 1 / 2 percentage point from real gdp growth in 2004 and more than 1 percentage point in 2005. the