lael brainard : economic outlook and monetary policy speech by ms lael brainard, member of the board of governors of the federal reserve system, at the 57th national association for business economics annual meeting “ north america ’ s place in a changing world economy ”, washington dc, 12 october 2015. * * * the will - they - or - won ’ t - they drumbeat has grown louder of late. to remove the suspense, i do not intend to make any calendar - based statements here today. rather, i would like to give you a sense of the considerations that weigh on both sides of that debate and lay out the case for watching and waiting. 1 the outlook domestic real activity has proven reassuringly resilient. most notably, the labor market has continued to improve this year, pushing the economy closer to full employment. while monthly nonfarm payroll employment growth looks to have slowed over the past three months to a 167, 000 monthly pace, so far this year it has averaged about 200, 000. with these gains more than sufficient to absorb trend growth in the labor force, they have led to gradual increases in resource utilization. at 5. 1 percent in september, the unemployment rate has declined 1 / 2 percentage point since december. alternative broader gauges of unemployment – which include individuals who are marginally attached to the labor force and employees working part - time for economic reasons – have also shown steady improvement this year. even so, a variety of evidence suggests there may be some distance to go to achieve full employment. although the unemployment rate is near longer - run norms, other measures of labor utilization are not. the labor force participation rate remains materially below the prerecession trend, even after adjusting for demographics. 2 and the share of employees working part time for economic reasons remains a full percentage point above the pre - recession level of around 3 percent, despite considerable recent improvement. even if there has been some trend increase in part - time work, it seems unlikely to account for all of the difference between current levels and pre - recession levels. 3 perhaps the most striking evidence in support of continued labor market slack is the absence of any acceleration in wages and prices. our main gauges of wage inflation suggest that labor compensation is increasing at a pace of about 2 to 2 – 1 / 4 percent, little different from these remarks represent my own views, which do not necessarily represent those of the federal reserve board or the federal open market committee. much of the decline in recent

although the story on this front is mostly reassuring, it warrants monitoring. projections from the survey of professional forecasters suggest that longer - run inflation expectations – which appear to be most relevant for predicting future inflation – have remained at 2 percent since the end of 2012. household surveys, such as university of michigan surveys of consumers, suggest that households ’ longer - run inflation expectations have remained in a narrow range throughout the crisis and the recovery, although they have stayed in the lower end of that range over the past year. in contrast, market - based measures of inflation compensation, such as inflation swaps and the difference between nominal and inflation - indexed treasury bond yields, have declined noticeably over the past year and a half at longer - term horizons. of course, factors other than inflation expectations, such as changes in liquidity premiums and inflation risk premiums, may be at play. although the balance of evidence thus suggests that long - term inflation expectations are likely to have remained fairly steady, the risks to the near - term outlook for inflation appear to be tilted to the downside, given the persistently low level of core inflation and the recent decline in longer - run inflation compensation, as well as the deflationary cross currents emanating from abroad – a subject to which i now turn. over the past 15 months, u. s. monetary policy deliberations have been taking place against a backdrop of progressively gloomier projections of global demand. the international monetary fund ( imf ) has marked down 2015 emerging market and world growth repeatedly since april 2014. in the second half of 2014, persistently weak aggregate demand in japan and the euro area led to heightened deflationary pressures. the policy response to these pressures and the anticipated divergence between the policy trajectory in these economies and the united states contributed to a 10 percent appreciation in the dollar in inflation - adjusted terms through the spring of this year, pushing down net exports and restraining activity in the united states. net exports subtracted nearly 1 percentage point from the annual rate of u. s. bis central bankers ’ speeches gross domestic product ( gdp ) growth in the first part of the year, and the most recent trade data suggest another substantial subtraction in the third quarter. more recently, weakness in foreign demand has extended to emerging market economies, which now account for about half of world output and have been an important source of growth for more than the past decade. growing recognition of this weakness pushed the dollar up further to 15 percent above its