william c dudley : the us economic outlook and the implications for monetary policy remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the abny ( association for a better new york ) breakfast, new york city, 5 december 2016. * * * jason bram, andrew haughwout, joseph tracy and luis uranga assisted in preparing these remarks. it is a great pleasure to be here and have the opportunity to talk about the u. s. economic outlook. i want to thank the association for a better new york ( abny ) for sponsoring today ’ s event. this is an excellent venue to speak about what we can do to improve our country ’ s economic performance. as always, what i have to say reflects my own views and not necessarily those of the federal open market committee ( fomc ) or the federal reserve system. the u. s. economy — supported by solid gains in household spending — has expanded at a moderate rate in 2016. job gains have been sturdy, and we have seen some firming in wage growth as the labor market has continued to tighten. moreover, as the effects of earlier declines in energy prices have dissipated, the overall inflation rate has begun to move up closer to our 2 percent objective. as a consequence, economic conditions are not far from the federal reserve ’ s dual mandate of maximum sustainable employment and price stability. and, i expect that we will make further progress toward these goals in 2017. so, from a cyclical perspective, the economy is in reasonably good shape. over the longer term, however, the u. s. economy faces significant challenges. on the positive side, economic expansions don ’ t die of old age, and there appear to be few imbalances in the economy that could lead to the current expansion ending. but, in order for this to remain the case, it is important that fiscal policy and monetary policy are well aligned going forward. it is also important that the united states retains sufficient fiscal capacity so that fiscal policy can support the economy when the next cyclical downturn does occur. if fiscal policy can play a greater role in promoting macroeconomic stability, it would likely reduce the need for monetary authorities to take extraordinary actions to support economic activity. there are other structural issues worth noting. in particular, productivity growth has been anemic over the past few years, while income inequality has increased and income mobility remains low. as a consequence, the gains in

- through into broader measures of prices. in fact, most measures of underlying inflation trends – such as core inflation ( which excludes volatile food and energy prices ) – remain below levels consistent with our mandate. going forward, futures markets do not signal that investors expect rapid ongoing increases in commodity prices from current levels. provided these prices stabilize ( or indeed retreat ), i would expect headline inflation to move back to a mandate - consistent rate. while this process plays out, however, it is critical that we ensure that inflation expectations do not become unmoored. it is much harder to keep inflation in check if people begin to raise their expectations of inflation. at this point, measures of inflation expectations overall remain stable. economists at the new york fed have examined inflation expectations using a unique survey that we sponsor. as reported in a recent post on our new liberty street economics blog, they find no evidence to suggest that a wage - price inflation spiral is getting underway. however, we will continue to monitor expectations for medium - term inflation very closely. to sum up, economic conditions have improved in the past year. yet, the recovery remains moderate and we still have a considerable way to go to meet the fed ’ s dual mandate of full employment and price stability. regional economic conditions now, how is our region doing? as attendees at previous press briefings may recall, the new york fed produces indexes of coincident economic indicators to help monitor the performance of the region. i am pleased to report that the latest months of data no longer suggest that the regional recovery has paused, as they indicated in february. based on these measures : the recovery of activity in new york state and new york city continues at a steady and sustained pace. bis central bankers ’ speeches in new jersey, activity also has begun to increase following a long period – roughly a year – where activity in the state was essentially flat. we monitor puerto rico using an index produced by the government development bank of puerto rico. the index shows that the decline in activity on the island began in 2005 and continued through late 2010. however, there are some signs that the economy has stabilized in recent months. regional employment trends now, let me turn specifically to employment trends in the region, the focus of our briefing today. in particular, we want to describe our region ’ s experience during the recession and recovery. nationally, the great recession, which began in december 2007, has been the deepest economic downturn since world war ii. at the jobs trough in february