is lowering inflation today by 1 - 1 / 2 percentage points, for any given unemployment rate. figure 2 acceleration in trend productivity note that when this effect is positive, as it has been since the mid - 1990s, it is a disinflationary effect and when it is negative - as it was following the decline in trend productivity growth after the early 1970s - it is an inflationary effect. the power and persistence of the direct disinflationary effect depends on both the pattern of the productivity acceleration and the speed of the adjustment process - specifically how fast wages respond directly to the productivity acceleration. if the adjustment is very drawn out as shown in figure 2, then the direct disinflationary effect would have been quite large and this effect would continue to be important for some time, even once productivity growth stabilizes. but if the adjustment were more rapid, the disinflationary effects of the acceleration in productivity would have been less powerful and would dissipate more rapidly once productivity growth stabilizes. as you can imagine, with so few observations, the data do not speak loudly about the speed or length of this adjustment process. as a consequence of this uncertainty about the speed of adjustment, i use a range of estimates - a tenyear moving average to capture the case of very sluggish adjustment and a three - year moving average to illustrate a more rapid adjustment. i view this as plausible range, but as i noted, it is difficult to identify the precise speed of adjustment within this range. these alternative moving averages translate into a range of 1 / 2 to 1 - 1 / 2 percentage points for the direct disinflationary effect of the acceleration in productivity growth. i use this range of estimates to calibrate the range for the decline in the short - run nairu in figure 3. figure 3 the unemployment rate and alternative estimates of the nairu in figure 3, i have assumed that the long - run nairu is 5 - 1 / 2 percent and that the long - run nairu has varied over the period from 1960 until today only in response to the effect of demographic changes on the average unemployment rate. 4 as i explain in somewhat more detail in the appendix, i estimate the short - run nairu by subtracting the direct disinflationary effect of changes in trend productivity from the estimate of the long - run nairu. this yields what i believe is a plausible range for the short - run nairu today of 4 percent

more so, of course, if oil prices move higher. going forward, the interaction of these two effects is likely to remain important in shaping the inflation outcome. there is, in my view, a reasonable prospect that each of these two effects will reverse their contributions to inflation over the next couple of years and that balance between them will be important in determining the pattern of core and overall inflation rates. i noted above that we might be nearing or possibly already be in a transition that might include a period of upward pressure on core inflation. if the expectations in futures prices for oil prove correct, however, we may soon be treated to an extended period of decline in oil prices. to be sure, there is enormous uncertainty surrounding such a forecast. in addition, the near - term risks through the winter appear asymmetric on the upside. but, thereafter, the fundamentals - some moderation in the robust pace of global growth and increased investment in oil - producing capacity - point to a gradual but potentially extended decline in the price of oil. a projected drop in oil prices likely underpins the consensus forecast of a decline in overall inflation next year. going forward, the secondary effects of lower oil prices would help to mitigate the rise in core inflation associated with prevailing and emerging demand pressures. ultimately, we would still have to deal with the persistent demand pressures on core inflation if the prevailing unemployment rate is below the short - run nairu and if the short - run nairu begins to converge toward its long - run value. but such a reversal in oil prices would buy some time in addressing this risk. as a result of this balance of forces, we could still achieve a quite benign outcome even if it isn ’ t the soft landing that many anticipate. no doubt there will be surprises along the way. but the interaction between the continuing adjustment to the acceleration in productivity and further swings in oil prices will likely play an important role in shaping the macroeconomic outcomes and the challenges facing monetary policy over the next couple of years. appendix : productivity and the nairu the model developed in this appendix supports both the analysis in the paper and the estimates of the magnitude of the disinflationary effect of an acceleration in productivity and of the short - run nairu. the model is based on a 1984 board staff paper by steve braun. this paper examined the effect of the productivity deceleration in the early 1970s on inflation afterward. the insights developed by braun were integrated into the modeling of inflation dynamics in the