, “ the role of expectations in changed inflation dynamics, ” finance and economics discussion series 2018 - 062 ( washington : board of governors of the federal reserve system, august ), https : / / doi. org / 10. 17016 / feds. 2018. 062. - 10 the operation of cyclical forces. 12 regardless, because inflation is ultimately a monetary phenomenon, the federal reserve has the capacity and the responsibility to ensure inflation expectations are firmly anchored at — and not below — our target. as i have argued in the past, the fact that inflation has been running somewhat below our longer - run goal of 2 percent may not be entirely due to labor market slack or to transitory shocks ; it also likely reflects some softening in inflation ’ s underlying trend. 13 first, estimates of underlying inflation based on statistical filters are lower than they were before the financial crisis and are currently below 2 percent. second, estimates of longer - run inflation expectations based on the university of michigan surveys of consumers and on inflation compensation from financial market pricing are also running lower than before the financial crisis. 14 our goal now is to get underlying trend inflation around our target on a sustained basis. what would this take? we can get some sense from statistical models. although there is no one widely agreed - upon method of measuring underlying inflation, one statistical approach that has received attention in recent years captures the idea that underlying inflation responds to the for a discussion of cyclical and acyclical inflation, see tim mahedy and adam shapiro ( 2017 ), “ what ’ s down with inflation? ” frbsf economic letter 2017 - 35 ( san francisco : federal reserve bank of san francisco, november ), https : / / www. frbsf. org / economic - research / files / el2017 - 35. pdf. for a specific discussion of the role of medical - care costs, see jeffrey clemens, joshua d. gottlieb, and adam hale shapiro ( 2016 ), “ medicare payment cuts continue to restrain inflation, ” frbsf economic letter 2016 - 15 ( san francisco : federal reserve bank of san francisco, may ), https : / / www. frbsf. org / economic - research / files / el2016 - 15. pdf. for a discussion of common global factors, see matteo ciccarelli and benoit mojon ( 2010 ), “ global inflation, ” review of economics and statistics, vol. 92 ( august ), pp. 52

i believe that the answer to the question is that most of the growth in productivity was structural, or trend, and not cyclical. we should also be mindful that even during the period between 1995 and 2000, productivity increases on a quarterly basis fluctuated ; the trend increase that is so clear now did not progress unabated. two fundamental factors lead me to be cautiously optimistic that the much of the improvement in productivity is likely to be sustained. notable advances in microprocessors, or semiconductors, have been key to the enhanced productivity growth that we have experienced. semiconductor industry experts indicate that the improvement in performance described by " moore's law, " which predicts that the capacity of chips will double every 18 to 24 months, continues to hold true. my understanding from conversations with, and announcements by, leaders of the semiconductor industry is that later this year or early next year chip manufacturers plan to begin using larger wafers, allowing them to reduce costs by 30 percent. they also plan to adopt thinner circuit lines, which will allow the manufacturers to etch more transistors on a single chip. a second reason to expect that much of the improvement in productivity growth is trend and not cyclical is that businesses indicate in their words and their deeds a commitment to improving productivity and maintaining costs by substituting capital, mainly it capability, for labor. overall growth of the economy has slowed to a pace between 1 percent and 2 percent at an annual rate for the most recent three quarters. however, investment in equipment and software has held at relatively high levels and is still sufficient to maintain relatively rapid growth of capital services. moreover, end - use demand for communications services seems to remain strong. since the early 1990s, the volume of data sent over networks in the united states has doubled each year, and there is no reason why that trend should abate. the role of government policy you will have noted that i have not mentioned the role of government policy in creating a higher rate of trend productivity growth. as a policymaker, i'd like to think that well - executed monetary and fiscal policies – each focused importantly on their respective long - run goals – played some role in creating economic conditions that fostered noninflationary economic growth. it is important to note, however, that although sound policy undoubtedly helped create the conditions for growth, macroeconomic policy cannot create growth itself. only businesses and consumers can do that. the economy of the united states has also benefited from past actions by