relatively healthy pace. uncertainty in the period following the referendum vote was reflected in a marked weakening of business sentiment indicators. these subsequently rebounded strongly though, suggesting a muted effect over the second - half of 2016. 1 / 6 bis central bankers'speeches underpinning the recovery of the irish economy in recent years has been the growth of underlying domestic demand. this measure of activity excludes the volatile components of investment in intangibles and aircraft. the stronger performance of activity on the domestic side of the economy, has been supported by a combination of relatively strong and broad - based growth in employment ; modest increases in incomes ; and more favourable financial conditions. underlying domestic demand was estimated to have increased by 3. 9 per cent in 2016. looking ahead, the main impetus for growth is projected to come from the continued strengthening of demand from domestic sources, in the form of solid growth in consumer spending and underlying investment. our forecasts for 2017 show that underlying domestic demand is projected to grow by over 3 per cent and by just under 3 per cent next year. to date, in the absence of any weakening in the uk economy, the impact of the brexit referendum outcome on ireland has mainly been felt through the volatility in the euro / sterling exchange rate. irish economic performance is quite sensitive to sterling exchange rate volatility given our close ties to the uk. sterling now appears to have fallen into a holding pattern on a trade weighted basis and versus the euro, since it posted new lows in october. the trend against the dollar however remains skewed to the downside. although the decline in sterling may appear dramatic, it also reflects an unwinding of sterling ’ s continued appreciation since 2013. the main channels through which the effects of brexit will be felt include trade via weaker foreign demand, the labour market and foreign direct investment. the uk is clearly an important trading partner, and some indicators suggest that brexit may already be having an impact on trade including in food and live animals. other key channels through which the effects of brexit will be felt include labour market flows between ireland and the uk and via the significant cross - border investment linkages. these will be important areas of interest for ireland in the upcoming negotiations. the performance of the irish labour market was exceptionally strong in 2016 with estimated employment growth of about 3 per cent – the strongest rate of increase since 2007. this translates into an average of 56, 000 additional persons at work in 2016. however

although the bis central bankers ’ speeches policy remains accommodative and will be adjusted at an appropriately gradual pace to achieve and maintain our dual objectives of maximum employment and 2 percent inflation. reflecting global economic and financial developments since december, however, the pace of rate increases is now expected to be somewhat slower. for example, the median of fomc participants ’ projections for the federal funds rate is now only 0. 9 percent for the end of 2016 and 1. 9 percent for the end of 2017, both 1 / 2 percentage point below the december medians. as has been widely discussed, the level of inflation - adjusted or real interest rates needed to keep the economy near full employment appears to have fallen to a low level in recent years. although estimates vary both quantitatively and conceptually, the evidence on balance indicates that the economy ’ s “ neutral ” real rate – that is, the level of the real federal funds rate that would be neither expansionary nor contractionary if the economy was operating near its potential – is likely now close to zero. 3 however, the current real federal funds rate is even lower, at roughly minus 1 - 1 / 4 percentage point, when measured using the 12 - month change in the core price index for personal consumption expenditures ( pce ), which excludes food and energy. thus, the current stance of monetary policy appears to be consistent with actual economic growth modestly outpacing potential growth and further improvements in the labor market. 4 looking beyond the near term, i anticipate that growth will also be supported by a lessening of some of the headwinds that continue to restrain the u. s. economy, which include weak foreign activity, dollar appreciation, a pace of household formation that has not kept up with population and income growth and so has depressed homebuilding, and productivity growth that has been running at a slow pace by historical standards since the end of the recession. if these headwinds gradually fade as i expect, the neutral federal funds rate will also rise, in which case it will, all else equal, be appropriate to gradually increase the federal funds rate more or less in tandem to achieve our dual objectives. otherwise, monetary policy would eventually become overly accommodative as the economy strengthened. 5 implicitly, this expectation of fading headwinds and a rising neutral rate is a key reason for the fomc ’ s assessment that gradual increases in the federal funds rate over time will likely median projection for overall inflation