to higher interest rates and funding costs, there have not been signs of a further sharp contraction in credit from the stress earlier this year that would slow economic activity. though loan balance growth has slowed, banks have continued to increase lending to households and businesses. given the strong economic data and still elevated inflation, i supported the fomc's decision in july to further increase the target range for the federal funds rate. i also expect that additional rate increases will likely be needed to get inflation on a path down to the fomc's 2 percent target. 1 / 2 bis - central bankers'speeches the recent lower inflation reading was positive, but i will be looking for consistent evidence that inflation is on a meaningful path down toward our 2 percent goal as i consider further rate increases and how long the federal funds rate will need to remain at a restrictive level. i will also be watching for signs of slowing in consumer spending and signs that labor market conditions are loosening. it's important to reiterate that monetary policy is not on a preset course. my colleagues and i will make our decisions based on the incoming data and its implications for the economic outlook. we should remain willing to raise the federal funds rate at a future meeting if the incoming data indicate that progress on inflation has stalled. returning inflation to our 2 percent goal is necessary to achieve a sustainably strong labor market and economy. 1 the views expressed here are my own and not necessarily those of my colleagues on the federal open market committee or the board of governors. 2 / 2 bis - central bankers'speeches

the recovery from the crisis has been much less robust than we had hoped. from recent comprehensive revisions of government economic data, we have learned that the recession was even deeper and the recovery weaker than we had previously thought ; indeed, aggregate output in the united states still has not returned to the level that it had attained before the crisis. importantly, economic growth over the past two years has, for the most part, been at rates insufficient to achieve sustained reductions in the unemployment rate, which has recently been fluctuating a bit above 9 percent. the pattern of sluggish economic growth was particularly evident in the first half of this year, with real gross domestic product ( gdp ) estimated to have increased at an annual rate of less than 1 percent, on average, in the first and second quarters. some of this weakness can be attributed to temporary factors, including the strains put on consumer and business budgets by the run - ups earlier this year in the prices of oil and other commodities and the effects of the disaster in japan on global supply chains and production. accordingly, with commodity prices coming off their highs and manufacturers'problems with supply chains well along bis central bankers ’ speeches toward resolution, growth in the second half looks likely to pick up. however, the incoming data suggest that other, more persistent factors also have been holding back the recovery. consequently, as noted in its statement following the august meeting, the federal open market committee ( fomc ) now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the june meeting, with greater downside risks to the economic outlook. one striking aspect of the recovery is the unusual weakness in household spending. after contracting very sharply during the recession, consumer spending expanded moderately through 2010, only to decelerate in the first half of 2011. the temporary factors i mentioned earlier – the rise in commodity prices, which has hurt households ’ purchasing power, and the disruption in manufacturing following the japanese disaster, which reduced auto availability and hence sales – are partial explanations for this deceleration. but households are struggling with other important headwinds as well, including the persistently high level of unemployment, slow gains in wages for those who remain employed, falling house prices, and debt burdens that remain high for many, notwithstanding that households, in the aggregate, have been saving more and borrowing less. even taking into account the many financial pressures they face, households seem exceptionally cautious. indeed, readings on consumer confidence have fallen substantially in recent months