In particular, attention should be paid to what could be done to capitalize on the recent stabilization in house prices to improve access to mortgage credit and to foster competition in mortgage origination to ensure a more complete pass-through of low secondary mortgage rates to households. Indeed, if balance sheet dynamics are more important and frictions around housing more powerful than we initially understood, then there should be strong payoff to policies that ease them. At the same time, Congress and the White House should take steps that reduce the short-term and long-term uncertainty over fiscal policy. Currently, households and businesses face elevated short-term uncertainty as to what will happen to tax and spending policies in 2013 and how this will affect the economic outlook. I believe this is restraining hiring and investment today. BIS central bankers’ speeches  7  But families and businesses also face long-term uncertainty about how the country’s fiscal challenges will be addressed. Providing greater clarity about the scope and terms of Social Security and Medicare must be helpful, especially in correcting those expectations that are unduly pessimistic. On this score, Social Security is particularly noteworthy.
Interest rates remain low among several of our trading partners, even though they have been raised so far this year in a number of countries as a result of rising energy prices and higher consumer price inflation. In the US, there are now expectations that the interest rate has peaked, and that it will be lowered in the course of summer 2007. A rise in key rates is expected over the next year in the euro area, Sweden, the UK, Australia, Japan and Switzerland. One risk factor is that inflation in the US and the euro area may be higher than expected. In the event, interest rates internationally are likely to rise more than the current outlook would imply and curb growth among our trading partners. In the past two years, oil prices have doubled, measured in USD. With little spare production capacity, even minor disruptions in supply or demand can have a relatively strong impact on prices. It is likely that global growth will remain buoyant. This may contribute to keeping oil prices at a high level. Recently, oil prices have been around USD 70 per barrel. Brent Blend futures prices have also climbed and indicate that oil prices will remain high for several years to come. Prices for a number of other commodities – including natural gas and some metals – have also risen sharply in recent years. So far, high oil prices have not led to slower growth in the world economy.