. although some in - demand occupations may be experiencing stronger wage growth, overall compensation growth has been around 2 percent over the past six years. taken altogether, these and other measures lead me to conclude that there remains significant underutilization of labor resources – and likely somewhat more slack than what is indicated by the unemployment rate alone. so, while good progress has been made, we have yet to achieve our full - employment goal. too - low inflation the other element of our dual mandate is stable prices. the fed defines its target as 2 percent inflation over the medium term, with inflation being measured as the rate of change in the personal consumption expenditures ( pce ) price index. earlier in the year, the inflation rate had been well below that target, at 1 - 1 / 4 percent. it has moved up a little since then, but inflation is still only 1 - 1 / 2 percent, still leaving a significant gap from our 2 percent target. of course, there are alternative measures of inflation, such as the widely reported consumer price index ( cpi ). the fomc has set its inflation target in terms of the pce price index because relative to the cpi it covers a wider range of items that households consume and because it better adjusts for changes in the spending patterns of households. cpi inflation is currently around 2 percent. but cpi inflation generally runs three to five tenths of a percentage point higher than pce inflation, and so the cpi ’ s performance should be measured against a higher inflation objective, such as 2 - 1 / 2 percent. so, an inflation gap remains for the cpi as well. looking ahead, i am concerned about the possibility that inflation will not return to our 2 percent target within a reasonable period of time. first, recent monthly inflation numbers have been low, so there is not much upward momentum. second, as i mentioned earlier, wage growth has been relatively low for some time. while wages don ’ t predict future inflation, the two often move together. so the subpar growth in wages we see today is consistent with continued subdued inflation. and, third, it does not appear as if inflationary expectations are exerting much of an upward pull on actual inflation at the moment. that said, i expect inflation to rise slowly over the next three years toward the fomc ’ s 2 percent target. and as i mentioned earlier, i am expecting further improvements in economic activity, with real gdp growing at around 3 percent over the next 18 months and

output growth is key for producing healthier labor market conditions. although the economic recovery generally has been weak, there has been enough cumulative progress to generate considerable improvement in the labor market. so where do we stand today? how much further do we have to go to fulfill our employment mandate? we can point to several measures to mark the progress we have made to date. employment has been growing over 200, 000 per month for quite some time. with expanding employment, the unemployment rate has fallen relatively rapidly. in fact, now standing at 5. 9 percent, the unemployment rate has fallen about 4 percentage points from its high – and a full percentage point over the last year. other measures of labor market health also suggest significant improvements : notably, layoff rates are low and job opening rates are back to their prerecession levels. but we still aren ’ t back to full labor market health. at 5. 9 percent, the unemployment rate remains above what most people think of as its long - run neutral level. for example, according to the central tendency in the fomc ’ s latest summary of economic projections, 1 the estimate of the neutral unemployment rate is between 5 - 1 / 4 to 5 - 1 / 2 percent, with my own judgment at the bottom of this range. this leaves a significant gap between our goal and current conditions. moreover, the labor force participation rate has dropped a good deal. most of the decline in labor force participation since 2000 is due to demographic trends, such as baby boomers moving into retirement age, and long - running trends, such as reductions in male and teenage labor force participation. these trends are structural in nature, and monetary policy is not the appropriate policy tool to address them. nonetheless, the labor force participation rate has fallen somewhat more than what would be expected given these structural trends. and it is federal open market committee ( 2014 ). bis central bankers ’ speeches also lower than what would be expected from its historical relationship with the unemployment rate. other indicators – such as long - term unemployment, the rate of involuntary part time work, and the job finding rate – also point to more slack in labor markets than that indicated by the unemployment rate alone. in addition, it is hard to imagine a robust labor market without solid growth in wages. with productivity growth of around 1 to 2 percent and an inflation target of around 2 percent, we should be seeing wages and benefits rising at around a 3 to 4 percent rate. but that is clearly not the case