to consider if this movement was consistent with our mandate for maximum employment. even with the easing in the labor market, consumer spending and overall economic activity continued to show solid growth. the combination of strong spending data and a cooling labor market was confounding. in thinking about this, i examined the productivity data that i follow closely and did not see the type of productivity growth i would have expected based on several other observations of the economy. for example, new business formation had surged in the post - pandemic period. it has been shown that newer firms foster innovation and boost productivity growth. business formation has remained elevated, from which i infer that the boost to productivity growth is not just a one - time phenomenon. also, in the post - pandemic period, workers switched jobs at much higher rates than typical. this likely led to better matches where workers can find more productive uses of their skills. in some cases, immigrants filled job openings for which employers traditionally struggle to attract workers. therefore, immigration can also contribute to improvements in job matches in specific but key sectors. as the economy reopened from the pandemic, many firms also invested in technology to substitute for workers, who were in short supply, which should support productivity gains. emerging technologies, most notably artificial intelligence, may also be starting to contribute to enhanced productivity. therefore, my speculation was that higher productivity was a possible explanation for the unusual combination of strong economic output, a cooling labor market, and declining inflation - even if it was not apparent in the quarterly data. that hunch was confirmed in september, when annual revisions to important economic data showed that economic activity and productivity growth had been stronger than previously estimated. the new figures indicated an average annual rate of productivity growth of 1. 9 percent since 2020, notably higher than the approximate 1. 4 percent annual rate in the five years before the pandemic. so that reveals our second positive shock : american workers have been more productive in recent years. this is a hugely important development because it increases the productive capacity of the economy and allows more rapid economic growth without overheating. what's more, revisions resulted in much better aligned gdp and gdi measures, and the two measures now also had much more aligned implications for productivity. in summary, the surprising and largely desirable outcomes for the economy in 2024 are easier to understand once we solve the puzzles i discussed. my thorough assessment of a wide range of data sources revealed that an unusual combination of reports over the past

and the cooling of various measures of resource utilization as a signal that perhaps the official population estimates were understated to the downside. starting at the end of 2023, i asked, what if substantial increases in the labor force due to the arrival of workers from other countries had not yet been picked up in census estimates? we had seen something similar before. in the late 1990s, official measures of the population were substantially revised up due to mismeasured immigration. during this period, establishment and household counts of workers also significantly diverged. and a third puzzle, with inflation, also warrants attention. inflation had steadily progressed toward the fomc's target during 2023, perhaps faster than some economists expected. the personal consumption expenditures ( pce ) price index eased from a peak of 7. 2 percent in june 2022 to about 3 percent at the end of 2023, measured on a 12 - month basis. when excluding volatile food and energy prices, core inflation similarly eased from a peak of 5. 6 percent in february 2022 to 3 percent at the end of last year. wage growth measures were consistent with inflation declining. 2 / 6 bis - central bankers'speeches economic developments this year at the turn of the new year, new data and other economic developments appeared to cloud the picture further. an uptick in consumer spending and overall economic activity in the fourth quarter of 2023 as well as a stretch of above - trend hiring gave a signal of unexpected strength to start the year. adding to the puzzling figures, core inflation rose 0. 5 percent in january, a notable acceleration from an average monthly increase of 0. 15 percent in the previous quarter. stronger - than - expected economic activity, faster hiring, and a reacceleration of prices gave some economists pause : was this a temporary acceleration, or a more sustained reheating of the economy? i viewed it as likely temporary, as it turned out to be. my view has always been that progress in the fight against inflation has to be judged from trends, not from a data release or two. i also anticipated that the process of bringing down inflation was likely to be sometimes bumpy. however, i viewed the elevated inflation readings as partly stemming from seasonal and one - off factors not fully accounted for in the data. in addition, price changes in some categories are difficult to measure, as i have described in previous speeches. 3 that is particularly true for certain services categories for which direct sources of prices are