rates faced by investors, nonfinancial firms and consumers. lower rates are also transmitted across the asset and maturity spectrum. there is significant evidence that the fomc ’ s policies have been helpful in reducing financing costs rates paid by firms and consumers and, more generally, in supporting aggregate demand in the face of substantial economic headwinds over the past six years. it should be noted that economic activity picked up momentum in the second half of 2013. overall, real gross domestic product ( gdp ) grew at a bit under a 3 - 1 / 2 percent rate in the second half, up from an average pace of growth of about 2 percent over the previous three years. moreover, we ’ ve seen some more solid consumer spending, which should provide further impetus to overall growth this year. in the labor market, job growth has been solid and the unemployment rate is down to 6. 7 percent. that is well below the 8. 1 percent rate that bis central bankers ’ speeches prevailed when we instituted the latest round of large - scale asset purchases in september 2012. however, we aren ’ t out of the woods yet. the harsh weather of this past winter – by which i mean the north american polar vortex – makes the recent data difficult to interpret. that said, some of them have been on the soft side. balance sheet scars from the financial crisis are still weighing on the economy. fiscal policy is a restraint on economic growth. and economic activity abroad is not robust. the good news is that all of these headwinds appear to be dissipating. but risks remain. and we still have large resource gaps. for example, the unemployment rate is still well above the 5 - 1 / 4 percent rate i think it should be in the long run. at the same time, inflation is only 1 percent – well below the fomc ’ s longer - run target of 2 percent. accordingly, monetary policy is highly accommodative, and needs to remain so for some time. given these developments, the fomc began adjusting the mix of its tools in december. the committee, however, is maintaining the overall highly accommodative stance of policy. the committee modestly reduced the pace of its monthly asset purchases from $ 85 billion to $ 55 billion in three separate $ 10 billion steps. in addition, with the unemployment rate approaching the 6 - 1 / 2 percent threshold that was established in december 2012, the committee decided it was time to update its forward

been particularly sluggish. furthermore, the weakness in gdp growth began before the bulk of the effects of higher energy prices hit the economy and before the disaster in japan happened. this timing, along with the continued softness of most economic indicators into the early summer, indicates that the slowing in output growth was not all due to temporary factors. even with slightly firmer economic data that have come out recently, the sense of building momentum seems absent. rather, the headwinds facing consumers and businesses are even stronger than we had thought. against this backdrop, the outlook has weakened substantially. last june my colleagues on the fomc and i were projecting real gdp growth would be around 2 - 3 / 4 percent in 2011 and 3 - 1 / 2 percent in 2012. as i alluded to a moment ago, some of the recent incoming numbers – on manufacturing activity and automobile sales, for example – have improved. even so, our latest forecast made in early november revised down our outlook for 2011 by a full percentage point and projected gdp growth at just 2 - 3 / 4 percent in 2012 – barely above most analysts ’ views of the potential rate of output growth for the economy. such growth bis central bankers ’ speeches rates certainly are not strong enough to make much of a dent in the unemployment rate and other measures of resource slack. indeed, the fomc ’ s latest forecasts are for the unemployment rate to remain above 8 - 1 / 2 percent through 2012 and to fall only to about 8 percent in 2013. without new developments or changes in policy, i don ’ t believe the u. s. economy is poised to achieve escape velocity anytime soon. inflation outlook under 2 percent what about inflation? large increases in energy prices pushed headline inflation – as measured by the 12 - month change in the total personal consumption expenditures price ( pce ) index – up from about 1 - 1 / 4 percent last fall to almost 3 percent this summer. these higher prices certainly took a bite out of households ’ budgets. but they did not portend a permanent ratcheting up of inflation. core pce inflation – which excludes the volatile food and energy components and is a better predictor of future overall inflation – has been just 1. 7 percent over the past year. furthermore, prices for energy and many other commodities have softened of late. and with the unemployment rate still high and capacity utilization low, resource slack continues to exert downward pressure on prices. in addition, measures of longer - run inflation expectations