Excerpt from speech: The background for today's economic situation is the remarkable boom in housing that ended a couple of years ago. From 1995 to 2005, new housing starts increased by more than 50 percent, and existing home prices increased by more than 150 percent (as measured by the Case-Shiller repeat sales index), and the homeownership rate increased significantly, from around 64 percent to 69 percent. Favorable fundamentals contributed to the boom; per capita real income grew much more rapidly in the decade after 1995 than in the decade before, and real mortgage interest rates were low relative to prior periods, especially after 2002. The inelasticity of the supply of buildable lots generated significant price increases in many parts of our country. Elsewhere, price appreciation was more modest. Housing demand ultimately became satiated in many major markets, however, and housing activity peaked in early 2006 in several regions. Since then, new housing starts have fallen by 55 percent, and since mid-2006, home prices have fallen by 18 percent.

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My topic today is the current economic situation and the outlook for the period ahead. Motivating an interest in this topic has been somewhat easier than usual in recent months.

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excerpt from speech: It's a pleasure to be with you. While the economy is seldom far from many people's minds, I think it's fair to say that economic conditions are garnering a bit more attention than usual right now. Housing markets have deteriorated over the last two years and the resulting losses on mortgage-related securities contributed to financial market turmoil last summer. The associated decline in employment in the construction and financial industries has contributed to a slowdown in aggregate job growth. Moreover, inflation ? both overall and excluding food and energy prices ? has picked up of late. As you might imagine, these developments have kept us busy at the Federal Reserve. So today, I'd like to spend some time talking about the economy. I'll begin by reviewing current economic conditions, and then go on to discuss the outlook for the coming year. Before we begin though, let me note that the usual disclaimer applies: the views I express are my own and are not necessarily shared by any of my colleagues on the Federal Open Market Committee.

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President Jeffrey Lacker spoke to the Risk Management Association of Richmond on Jan. 18. His remarks, "The Economic Outlook for 2008," included a review of recent events in world financial markets and a discussion of actions by Federal Reserve policymakers.

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President Lacker discusses current economic conditions in detail, before going on to discuss the outlook for the coming year.

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excerpt from speech: I am pleased to be with you here today to discuss my views on the economic outlook. 1 When this date was arranged many months ago, I was looking forward to delivering my remarks during the sleepy dog days of summer. Instead, we meet during fairly tumultuous times in financial markets. Over the last several weeks, we have seen substantial revisions in market participants? assessments of the fundamental value of securities related to sub-prime and other non-standard mortgages, financial distress related to mortgage finance at several entities, considerable widening of credit spreads, and significantly larger swings in asset prices. This turbulence makes assessing the economic outlook more challenging than usual, and of course makes central bank policymaking especially challenging.

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excerpt from speech: I am very pleased to be with you today to discuss my views on the economic outlook, with particular emphasis on the outlook for inflation.1 In its most recent statements, the Federal Open Market Committee has identified ?the risk that inflation will fail to moderate as expected? as its ?predominant policy concern.? This places current inflation and the inflation outlook squarely at center stage in thinking about the economy and monetary policy. So in my remarks today, I will take a closer look at inflation?s recent behavior and the prospects for its future behavior. In doing so, I?ll discuss the interplay between real activity and inflation expectations. As always, these remarks should be taken as my own personal views, and not necessarily those of any of my colleagues in the Federal Reserve.

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excerpt from speech: Let me begin by telling you about some recent experiences. I had the opportunity earlier this year to guest-teach a couple of business school economics classes. I opened my discussions with a pair of questions, asking students to put themselves in the place of a monetary policymaker choosing a target for the federal funds rate. First I gave them a set of hypothetical facts about the state of the economy: a slowdown in housing in the wake of multi-year housing boom; rising mortgage default rates; preliminary indicators of a slowing in business investment. And then I asked them: ?What are you going to do?? The students dutifully responded that this situation could call for a reduction in the funds rate. They?d obviously been doing their homework.

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excerpt from speech: I recently had the opportunity to guest-teach a couple of business school economics classes. It was great to be back in the classroom. Don?t get me wrong ? I like my current job. But it was nice not to have to vote on anything. I opened my discussions with a pair of questions, asking students to put themselves in the place of a monetary policymaker choosing a target for the federal funds rate. First I gave them a set of hypothetical facts about the state of the economy ? a slowdown in housing in the wake of multi-year housing boom; rising mortgage default rates; preliminary indicators of a possible slowing in business investment. And then I asked them: ?What are you going to do?? The students dutifully responded that this situation could call for a reduction in the funds rate. They?d obviously been doing their homework.

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excerpt from speech: In considering the economic outlook, it?s important to bear in mind the broader transition that is taking place. In the three-year period leading up to the middle of last year, we?ve seen above average growth. Real gross domestic product ? our best measure of total production in the economy ? grew at a 3 ¾ percent annual rate. To appreciate the strength of that performance, note that the trend rate of GDP growth ? by which I mean the rate consistent with trend growth in productivity and the labor force ? is more like 3 percent. Labor market conditions improved significantly over that period, with 5.4 million new jobs created and the unemployment rate falling by a full 1 ½ percentage points. With jobs increasingly plentiful, household spending surged ? real per capita consumption rose at a robust 2.6 percent annual rate. And even as their spending increased, consumers continued to build wealth; household net worth increased by 31 percent to reach a level equal to five years of personal income.

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