And after the recession ended, that sense has led many forecasters, myself included, to predict repeatedly that growth was about to shift to a more robust pace. That just hasnt happened; weve seen short-lived surges in growth, only to see growth subside for the following couple of quarters. For example, real GDP surged over the second half of last year only to falter at the beginning of this year.

This experience has led me to conclude that a sustained increase in growth to something over 3 percent in the near future is unlikely. Given what we know, after more than five years of this expansion, it strikes me as more likely that growth will continue to average somewhere between 2 and 2 percent.

The broadest barometer of economic conditions is gross domestic product, which measures the nation’s total output of goods and services. My forecast calls for GDP to rise nearly 2½ percent this year and about 3 percent in 2013. That’s an improvement from 2011, when I estimate GDP grew about 1¾ percent. Unfortunately, such moderate growth will not be enough to take a big bite out of unemployment. The unemployment rate is currently 8.5 percent. I expect it to remain over 8 percent well into next year and still be around 7 percent at the end of 2014.

I'm looking for GDP over the course of 2012 and 2013 to be only about 3%. Which is a little above trend-- it's not an outrageous forecast by any stretch of the imagination. Many people are a little below that, maybe at 2.5%, but you know, frankly the difference between 2.5% and 3%, our ability forecast with that degree of accuracy is pretty poor.

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We've seen unemployment fall almost a full percentage point in the last year. The last time that happened was 1995. And it never fell a full percentage point in a year after the 2001 recession. So I'm a little more optimistic I mean, I think we we will be by the end of 2012 and I think unemployment will be close to 8% and on my better days maybe even a little shy, little below that.

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With the economy likely to shrink significantly in the first half of this year, the unemployment rate rising higher than 8.5 percent is, unfortunately, very likely.
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I believe that below-potential growth is likely to persist until financial markets and financial institutions can resume more normal functioning.  So in addition to the other steps being taken to stimulate the economy, we need to be sure that actions to support the stability of the financial system are taken without delay – and, in the slightly longer term, that regulatory frameworks are thoughtfully reformed.

The 12-month inflation rate through July was measured at 5.6 percent, the highest since 1991. This is a high and worrisome number...No matter how you measure it, the aggregate inflation we are experiencing in the United States at the moment is uncomfortably high.

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I expect the recent decline in oil prices will begin to reverse some of the pressures we have seen on overall inflation in the first half of the year. But the underlying global supply pressures remain tight, and demand pressures remain relatively high. As such, any relief will likely be only partial.

Furthermore, some government estimates suggest little respite from food price hikes in the near term. At this point, it seems quite probable that PCE index inflation this calendar year will clock in at more than 3.5 percent and the CPI somewhere north of 4 percent—an improvement over the first half of the year, and trending in the right direction, but not numbers I would be comfortable with over the longer term.

Although recent measures of inflation are higher than I would like to see, I would say that recent price increases are more likely to be transitory than persistent. I expect that CPI inflation will peak near the July level of 5.6 percent. By comparison, in March 1980 the CPI peaked at 14.8 percent.
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I concur with that view and believe current Fed policy is consistent with an easing in overall inflation given the dynamics of the economy. With weak growth and financial market strains, I believe the most likely outcome is that both headline and core inflation will diminish over the rest of 2008 and into next year as the temporary effects of energy and food price increases abate. Note that my outlook does not require that food and energy prices fall, but simply that their rates of increase moderate.

Mr. Plosser said some of the decline in core inflation — which excludes food and energy — during the spring, to 1.9% by the Fed’s preferred measure, was "transitory." Nonetheless, he said, “I can’t see core in the latter half of 2007 being much more than a little over 2%."

As reported by the Wall Street Journal

On net, the recent experience does not appear to require a significant rethinking of long-term productivity trends.  Indeed, recent estimates by leading economists continue to peg the expected longer-term rate of productivity growth at roughly 2-1/2 percent per year.

The Fed, in the short run, tolerates the pressure rising energy prices exert on headline price measures, Mr. Bernanke said. "Our objective is to make sure it doesn't pass through into other wages and prices, in other words, that there are not second-round effects," he said.

"In the long run, what we would like to control is headline inflation," Mr. Bernanke said, "After all, that's what is determining the value of money, and it's what people need for their planning," along with being the force that "affects real wages and real incomes," he said.

"It is very difficult to eliminate the inflationary impact of the immediate effects of an increase in energy prices," he said. "Doing so would require forcing down wages and other prices quite dramatically to keep the overall price level from rising."

From Q&A session reported by the Wall Street Journal

I expect second-quarter GDP growth to be revised upward to closer to 3 percent. And my best guess one month and two weeks into the third quarter is that the speed at which we are now proceeding is roughly of that magnitude. From my vantage point, despite what you hear from some of the Eeyores in the analytical community, a recession is not visible on the horizon.

Globally, output growth appears poised to exceed 4 percent for the fourth consecutive year--a strong performance that will support the US economy by continuing to stimulate our exports of goods and services.

With overall population growth continuing to slow and labor force participation not expected to rise, we probably need to adjust our benchmarks for what level of employment growth is consistent with economic growth near potential and a steady unemployment rate. It used to be that increases in payroll employment that averaged 150,000 per month were consistent with flat unemployment. Now that number may be closer to 100,000. These developments also imply that, in the absence of changes in productivity growth, our estimates of potential GDP growth should be revised down 2 or 3 tenths of a percentage point to a range of 3 to 3-1/4 percent.

My view is similar to the consensus of private sector forecasters. I would expect growth of around 3 ½ percent (Q4/Q4) for 2006, which is just slightly above most estimates of trend GDP growth. That said, growth in the first quarter may come in well above 3 ½ percent, as the economy rebounds from the sluggish fourth quarter. But over the course of the year, I would expect to see GDP decelerate to around its trend growth rate...

The solid growth forecast for the economy also should translate into steady growth in employment. The increases will be somewhat less than employment gains seen in the past two years due to two factors.  First, as growth slows and converges toward the economy’s trend growth rate, fewer additional workers will be needed. And second, strong productivity growth over the past few years is expected to continue, suggesting that the existing workforce will be able to produce a sizeable portion of the projected increase in output.  Based on these factors, I would expect that employment will grow by between 1.5 million and 2 million jobs in 2006. That translates into an increase of 125,000 to 167,000 jobs per month.

With the IT revolution continuing and a flexible U.S. economy operating in a more global marketplace, I expect labor productivity to grow by around 2-1/4 percent per year. These estimates imply a potential for output growth of about 3 percent per year on a sustained basis.

One implication of this perspective on recent productivity trends is that the current expansion in business investment is laying a foundation for future growth in total factor productivity, and thus provides at least some grounds for optimism that productivity growth might come in at 2.5 percent or higher, rather than the long-run trend rate of 2.25 percent.

The overall outlook therefore is for a healthy expansion next year. Real GDP should grow at about 3.5 percent.