I think the uncertainties going forward are the extent to which the growth in investment spending stays about where it was in the first quarter or picks up to where it was last year... And then oil prices are obviously a source of uncertainty. I think we can handle fluctuations around the range we've seen, but a major breakout would be another kettle of fish.

Oil futures markets are indicating that higher energy prices may well be with us for quite a while. And how businesses and individuals react to this energy price outlook—both short and long term—is a key economic uncertainty.

We still have more ground to cover [in the removal of monetary accommodation]. Otherwise, we risk that some of the increased pressures we have seen recently from higher costs for energy and other items will become permanently embedded in the inflationary mentality of firms and households. So far, this has not happened, and we still believe that monetary accommodation can be removed at a measured pace. But if inflationary prospects do worsen, we will act as necessary to fulfill our obligation to maintain price stability.

In the last couple of months, we have had a kind of soft spot...It's been in some ways broad-based...In part, the slowdown is due to higher energy prices...It's natural to see both confidence decline and spending on other things take a dive...But I wouldn't want to exaggerate the softness...The job market seems pretty strong...Oil prices have backed off some...[This is] a transitory slowdown as consumers adjust and then consumer spending will pick up again toward a more normal level.  We have a pretty sustainable expansion here.

Oil prices have backed off some.  And even if they stay high, which most economists and market participants are assuming, looking toward the end of the year and into [2006], probably $50-a-barrel oil prices seem likely to be with us.

Although still high, it is useful to remember that current prices would need to rise to around $77 per barrel to reach their record inflation-adjusted highs that were seen in early 1980.

High prices, however, should not be confused with rising prices. Although there may be some continuing pass-through of higher energy prices into prices for other goods, energy itself should not be a source of long-continuing inflation pressure.

[I do not] expect energy prices to drop precipitiously, but I think they have slowed...That will allow the economy to breathe again, and we'll see some strengthening of the economy as we move through the summer and into the fall.

Core inflation has been running somewhat faster more recently, in part because of the increases in the prices of energy, commodities, and imports that began last year. Nevertheless, barring further sizable increases in the prices of oil and natural gas, both core and headline inflation rates should moderate later this year. Buttressing this view, long-run inflation expectations have been, on balance, fairly stable in the face of these price gyrations.

We have had some recent readings, the trade and retail sales, that suggest maybe we hit a soft-spot in March...I think we are probably seeing energy prices beginning to impact consumers.

We are unable to judge with certainty how technological possibilities will play out in the future, but we can say with some assurance that developments in energy markets will remain central in determining the longer-run health of our nation's economy.

The prices of energy, employee benefits, and raw materials have posed challenges to businesses for several years now. To date, these cost increases have been largely buffered by rising productivity and sizable profit margins, so their pass-through to final goods prices has been limited. But more recently, I have heard stories from my business contacts telling me that increased prices can now be passed along. These stories may well only portend increasing prices for intermediate goods, with the final goods prices continuing to be well contained by productivity and profitability. But to my ear, these stories modestly raise the risk of rising inflation.

Consumer spending has been remarkably resilient in the face of higher oil prices, but the evidence does suggest that there was some negative impact on spending over the past year and oil prices have again ratcheted up over $50 per barrel.

If people begin to expect higher inflation because of the current impact of oil prices, we could face a kind of scaled down version of the devastating wage-price spiral we lived through in the 1970s. The good news is that evidence from financial market indicators, surveys, and recent patterns of labor compensation all indicate that long-term inflation expectations have been extremely stable. Presumably, this reflects the market’s view that the Fed will continue to demonstrate that it’s willing to do what’s necessary to ensure U.S. price stability.

Energy markets are hard to predict; and sustained high oil prices have a negative impact on the economy. Even though energy prices are largely controlled in the short term by others, we’ll have to continue to see how things develop.