indicated last week, economic developments will determine the level and term structure of interest rates. of course, we cannot predict exactly how economic events will unfold over the coming year. but, at this point, i still concur with the federal open market committee ’ s characterization that monetary policy accommodation will become increasingly less necessary over time and can be removed at a pace that is likely to be measured. national center for education statistics, the condition of education 2004, “ student attitudes and aspirations : postsecondary expectations of 10th - graders, ” u. s. department of education, june 2004. national center for education statistics, the condition of education 2004, “ adult learning : adult participation in workrelated learning, ” u. s. department of education, june 2004.

profitability has allowed corporate america to achieve the highest level of liquidity in more than a decade. as i noted a moment ago, i find the recent recovery in hiring to be a particularly welcome indication that businesses have become confident about the durability of the expansion. last year, as economic activity began to pick up, the recovery remained even more “ jobless ” than the recovery of the early 1990s. a good deal of monetary and fiscal stimulus was in place, which we expected over time to show through to a pickup in real economic activity. but firms were unusually reluctant to make commitments to take on new workers in an atmosphere clouded by risks and uncertainties associated with the war in iraq and with the fallout from lapses in corporate governance. my sense, from both my informal contacts in the business and banking communities and the available surveys of business attitudes, is that confidence has recovered noticeably this year. other explanations for the sluggish recovery in employment during 2002 and 2003 focused on developments that may have more lasting effects on the labor market. first, the recovery seemed to be marked to an unusual degree by an ability of businesses to achieve labor - saving efficiency gains. recall that we began to detect an improvement in productivity in the second half of the 1990s. the rate of increase in output per hour in the nonfarm business sector moved up from just 1 - 1 / 2 percent per year between 1973 and 1995 to 2 - 1 / 2 percent per year between 1996 and 2000. that acceleration appears to have been largely the result of brisk business investment. since then, even with the slump in capital spending from 2001 to early 2003, productivity has risen at a stunning annual rate of 4 percent. one of the striking features of the recent acceleration is that the gains in efficiency seem to be the result of organizational changes and innovations in the use of existing resources - perhaps in part the result of learning better how to apply the new technologies that they acquired at a rapid pace in the late 1990s. during the early part of the expansion, when aggregate demand remained weak, the especially rapid gains in efficiency allowed businesses to meet their sales and production goals without having to add workers. but as the pace of the expansion has stepped up over the past several quarters, we have begun to see both sustained advances in output per hour and gains in jobs. i suspect that productivity will eventually slow from the extraordinary pace of the past couple of years - indeed, the recent figures offer some evidence that some slowing has already occurred. nonetheless, i