in contrast to the typical pattern early in previous business - cycle recoveries, firms have appeared reluctant to take on new workers and have remained focused on cost containment. as opposed to the lingering hesitancy among business executives, participants in financial markets seem very confident about the future and, judging by the exceptionally low level of risk spreads in credit markets, quite willing to bear risk. this apparent disparity in sentiment between business people and market participants could reflect the heightened additional concerns of business executives about potential legal liabilities rather than a fundamentally different assessment of macroeconomic risks. turning to the outlook for costs and prices, productivity developments will likely play a key role. the growth of output per hour slowed over the past half year, giving a boost to unit labor costs after two years of declines. going forward, the implications for inflation will be influenced by the extent and persistence of any slowdown in productivity. a lower rate of productivity growth in the context of relatively stable increases in average hourly compensation has led to slightly more rapid growth in unit labor costs. whether inflation actually rises in the wake of slowing productivity growth, however, will depend on the rate of growth of labor compensation and the ability and willingness of firms to pass on higher costs to their customers. that, in turn, will depend on the degree of utilization of resources and how monetary policymakers respond. to date, with profit margins already high, competitive pressures have tended to limit the extent to which cost pressures have been reflected in higher prices. productivity is notoriously difficult to predict. neither the large surge in output per hour from the first quarter of 2003 to the second quarter of 2004, nor the more recent moderation was easy to anticipate. it seems likely that these swings reflected delayed efficiency gains from the capital goods boom of the 1990s. throughout the first half of last year, businesses were able to meet increasing orders with management efficiencies rather than new hires. but conceivably the backlog of untapped total efficiencies has run low, requiring new hires. indeed, new hires as a percent of employment rose in the fourth quarter of last year to the highest level since the second quarter of 2001. there is little question that the potential remains for large advances in productivity from further applications of existing knowledge, and insights into applications not even now contemplated doubtless will emerge in the years ahead. however, we have scant ability to infer the pace at which such gains will play out and, therefore, their implications for

i will have confidence that inflation is moving sustainably toward that objective. for the reasons i have outlined today, i believe economic conditions are moving in the right direction. if the economy evolves as i am expecting, it will likely become appropriate to begin easing policy sometime later this year. but, as always, my judgment will be guided by the data. let me conclude by acknowledging that the surge in inflation over the past few years means that prices are now significantly higher than they were just a few years ago, even as the rate of price increases has slowed dramatically since mid - 2022. while i am heartened by data showing that nominal wages are now growing at a faster rate than prices, i know many americans are still struggling with high costs. i also know that many americans are facing high borrowing costs. that's why i will be watching the data carefully in the months ahead to ensure that we are on track to achieve both sides of our dual mandate. 1 the views expressed here are my own and not necessarily those of my colleagues on the federal open market committee. 2 these facts are from hugh montag and daniel villar ( 2023 ), " price - setting during the covid era, " feds notes ( washington : board of governors of the federal reserve system, august 29 ). i thank the authors for providing me with updated data through early 2024. 3 for research on firms'price - setting and inflation expectations, see felipe f. schwartzman and sonya ravindranath waddell ( 2024 ), " inflation expectations and price setting among fifth district firms, " economic brief 24 - 03 ( richmond, va. : federal reserve bank of richmond, january ). with regard to overall measures of inflation expectations, anchored longer - run inflation expectations are apparent in the university of michigan surveys of consumers, where 5 - to - 10 - year - ahead expectations remain close to values seen a decade ago ; in the survey of professional forecasters, where 10 - year inflation expectations are close to pre - pandemic norms ; and in other sources. 5 / 6 bis - central bankers'speeches 4 for example, the ratio of the producer price index ( ppi ) for final demand goods to the employment cost index for private goods industries rose roughly 20 percent from the end of 2020 to the middle of 2022. in services, this ratio rose roughly 5 percent. the ratios for both sectors have come down from their peak levels but were still above their end - 2020 levels