stanley fischer : remarks on the us economy speech by mr stanley fischer, vice chair of the board of governors of the federal reserve system, at the “ program on the world economy ”, a conference sponsored by the aspen institute, aspen, colorado, 21 august 2016. * * * i am grateful to christopher nekarda, joseph gruber, david lebow, and stacey tevlin of the federal reserve board staff for their assistance. views expressed are mine and are not necessarily those of the federal reserve board or the federal open market committee. the fed ’ s dual mandate aims for maximum sustainable employment and an inflation rate of 2 percent, as measured by the price index for personal consumption expenditures ( pce ). employment has increased impressively over the past six years since its low point in early 2010, and the unemployment rate has hovered near 5 percent since august of last year, close to most estimates of the full - employment rate of unemployment. the economy has done less well in reaching the 2 percent inflation rate. although total pce inflation was less than 1 percent over the 12 months ending in june, core pce inflation, at 1. 6 percent, is within hailing distance of 2 percent – and the core consumer price index inflation rate is currently above 2 percent. so we are close to our targets. not only that, the behavior of employment has been remarkably resilient. during the past two years we have been concerned at various stages by the possible negative effects on the u. s. economy of the greek debt crisis, by the 20 percent appreciation of the trade - weighted dollar, by the chinese growth slowdown and accompanying exchange rate uncertainties, by the financial market turbulence during the first six weeks of this year, by the dismaying pothole in job growth this may, and by brexit – among other shocks. yet, even amid these shocks, the labor market continued to improve : employment has continued to increase, and the unemployment rate is currently close to most estimates of the natural rate. during that period, the decline in the price of oil changed from being regarded as a simple reduction in the cost of living of almost all households – and thus an unmitigated blessing – to also being a source of concern, as it was understood that the decline in investment in the production and installation of drilling equipment mitigated the blessing, as did the decline in u. s. oil production. and there have been other issues of concern to those particularly interested in monetary and

; revised july 2016 ) ; and david byrne and eugenio pinto ( 2015 ), “ the recent slowdown in high - tech equipment price declines and some implications for business investment and labor productivity, ” feds notes ( washington : board of governors of the federal reserve system, march 26 ). see, for example, chad syverson ( 2016 ), “ challenges to mismeasurement explanations for the u. s. productivity slowdown, ” nber working paper series 21974 ( cambridge, mass. : national bureau of economic research, february ) ; and david m. byrne, john g. fernald, and marshall b. reinsdorf ( 2016 ), “ does the united states have a productivity slowdown or a measurement problem? ( pdf ) ” brookings papers on economic activity, spring, pp. 109 – 82. bis central bankers ’ speeches another explanation is that business investment has been relatively modest during the current expansion, and so increases in capital per worker have been smaller than in previous decades. part of the modest pace of investment is likely because the effective labor force that will use this new capital has been expanding much less rapidly than in previous decades, but it is also possible that investment has been restrained by the subdued outlook for growth and profits, thereby generating less demand for expanding productive capacity. 5 however the slow growth in capital per worker has been quantitatively less important – accounting for only one - fourth of the slowdown in productivity compared with its long - run average – than the decline in the growth rate of total factor productivity ( tfp ), the portion of productivity that is not accounted for by measurable inputs to production. indeed, tfp growth has averaged less than 1 / 2 percent per year in the past 10 years, well below its long - run average of 1 – 1 / 4 percent. pinning down the exact causes of this slowdown is difficult, and there are many possibilities. for instance, it may reflect a slowdown in technological innovations, which may be persistent, as some have argued, or may be a temporary phenomenon, as i am inclined to believe. 6 low - to - middling tfp growth might also reflect the downward trend in business dynamism, as evidenced by a notable slowdown in gross job creation and destruction. diminished dynamism has been linked to a marked slowdown in the reallocation of labor and capital from low - productivity establishments and firms to high - productivity ones, especially in innovative sectors like high