odds of inflation rising noticeably above target could become palpable. but such a breakout is just not at all very likely today. indeed, many fed critics have been voicing this concern since 2009, and it hasn ’ t even come close to happening. what if inflation just ran moderately above target for some time? well, i see the costs of this outcome as clearly being much smaller than the costs of falling back into the zlb. first, i believe the u. s. economy could weather the modest increases in interest rates that would be needed to keep inflation in check. such rate increases would be manageable for the real economy ; this is particularly true if industry and labor markets have already made the most difficult reallocations of jobs and overcome other factors so that productive resources are more efficiently and fully employed. second, as i ’ ve noted many times in the past, a symmetric inflation target means we should be averaging 2 percent inflation over time. we ’ ve averaged well under that 2 percent mark for the past six and a half years. with a symmetric inflation target, one could imagine moderately - above - target inflation for a limited period of time as simply the flip side of our recent inflation experience – and hardly an event that would impose great costs on the economy. the murky state of inflation expectations is another factor that enters my risk management considerations. for inflation to take off rapidly, we would have to see a jump in inflationary expectations. but inflationary expectations have been quite stable. indeed, we may be facing a quite different problem. many forecasters – myself included – assume that stable 2 percent bis central bankers ’ speeches inflation expectations will be an important factor helping to pull actual inflation up. over the past five years, professional forecasters ’ projections for long - run inflation have been at the 2 percent target and treasury inflation - protected securities ( tips ) break - evens have been flat. yet actual inflation has only just recently made it back up to 1 – 1 / 2 percent. moreover, we still have not seen much at all in the way of higher inflation compensation being built into interest rates or wages. so there is cause for concern that expectations might not produce as strong a pull on inflation as we hope. we can turn to the japanese experience again to highlight this risk. long - run inflation expectations in japan have averaged a little over 1 percent. yet during that period, the only time inflation was palpably above zero – let alone not in outright deflation –

may not be directly measureable. in light of this uncertainty, the committee considers many factors in gauging maximum employment. as the extremely relevant research presented at this conference makes clear, judging the degree of slack along these many dimensions is a difficult and complex task. but it is one that is critical for the conduct of monetary policy – we must have a good idea of what constitutes achievement of our full employment target. our chicago fed research staff has been working long and hard, and in my remarks today, i will briefly talk about some of our results that touch on several of the most contested labor market issues on the table today. these involve labor force participation, job openings and wages. to give you the punch line, this research and work done by others in the field lead me to conclude that, although we have made great strides, a good deal of slack remains in the labor market. labor force participation and employment as everyone in this room is aware, the labor force participation rate has fallen throughout the recession and recovery and is now at a 35 - year low. 1 as julie hotchkiss described earlier this morning, it is well understood that much of the decline is due to trends that far predate the great recession. the movement of baby boomers into retirement age and the longrunning declines in teenager and prime - age male participation would have significantly reduced labor force participation rates independently of the economic downturn. chicago fed economists first did work on the prospects for a declining labor force participation trend back in 2001 – near the time the rate peaked at just over 67 percent. 2 even after revisiting this topic numerous times and with multiple generations of research assistants running the programs, their views about the trends that are consistent with the composition of the population and a labor market near equilibrium have not changed much the labor force participation rate is defined as the share of the population aged 16 and older who are either employed or unemployed. to be unemployed, a person has to not have a job but be actively looking for work in the prior four weeks and to be currently available to work. these data are collected by the u. s. bureau of labor statistics as part of its monthly current population survey. aaronson and sullivan ( 2001 ). bis central bankers ’ speeches since then. 3 among the many robustness analyses they performed, their models produce nearly the same trend for labor force participation as they have since 2001. 4 depending on the details of the specification, chicago fed economists estimate that at the end of