Since the end of the recession, real GDP has grown at an average annual rate of just 2.1 percent. In contrast, in the 60 years before the recession, real GDP grew at an average annual rate of 3.5 percent. Based in part on that long track record, many forecasters, myself included, were expecting growth to pick up to a more robust pace. More recently, however, I have come to the conclusion that a sustained acceleration of growth to something over 3 percent in the near future is unlikely. Given what we know, it strikes me as more likely that growth will continue to average somewhere between 2 and 2 1/2 percent. Let me briefly explain why.

It's helpful to start by thinking of the growth in real GDP as the sum of two components: growth in employment and growth in GDP per employee, a measure of productivity growth. When you calculate these two components, you find that both have slowed considerably since the Great Recession.

Taking these in turn, the rate of growth in employment has been about two-thirds of the rate we saw in the decades prior to the Great Recession. Part of that decline reflects structural developments such as slower growth in the working-age population, the aging of the baby boomers and the rise of enrollment in educational institutions. In addition, we've seen a gradual secular decline in the labor force participation rates for people in the prime working-age group aged 25 to 54. Some economists attribute this to workers becoming discouraged about their job market prospects and argue that the unemployment rate is understating the amount of "slack" in the labor market. Our research indicates, however, that there is always more slack than indicated by the standard unemployment rate, and by some measures there seems to be no more additional slack now than is typically associated with the current level of the unemployment rate.

Productivity growth, the other component of real GDP, grew fairly rapidly in the early postwar period, rising at a 2.7 percent annual rate from 1948 to 1969. Productivity growth then slowed, rising at a 1.4 percent annual rate from 1969 to 2007. And since the fourth quarter of 2007, productivity growth has averaged only 1.0 percent per year.

An active debate has sprung up concerning prospects for future productivity growth. Some economists have suggested that major, broad-based advances in technology are far less likely than in the past, and that we should prepare for a relatively stagnant productivity trend. I am not so gloomy, however, in large part because of the amazing historical record of technological innovations that solve current problems and simultaneously open up new possibilities for future innovations. Having said that, the difficulty of forecasting output per worker suggests that the middling productivity gains we've seen over the last few years are probably the best guide to near-term productivity trends. Thus, I am not expecting an imminent acceleration in productivity growth.

Productivity growth is critically important because it's what drives growth in real wages and real household income, which in turn ultimately drives consumer spending. Some proponents of the view that GDP growth will soon accelerate argue that a pickup in productivity growth will boost disposable income trends and thereby set off an acceleration in consumer spending. Data earlier in the year seemed to indicate that such an acceleration might be in train. More recent household spending figures suggest otherwise, however

The housing market has also perplexed forecasters over the course of this expansion Potential homebuyers now seem to be more conscious of the financial risks of homeownership than before, and housing demand has been shifting toward multifamily rental units. Moreover, the overhang of homes associated with foreclosures and seriously delinquent mortgages remains elevated, and this is dampening housing market activity. Thus, I am expecting residential investment to make only modest contributions to overall growth over the near term.

These three factors subdued productivity growth, moderate consumer spending growth and a more tempered expansion in housing construction are keys to my assessment that overall economic growth is likely to average between 2 and 2 percent over the near term, which is around the average rate we've seen for this expansion.

Despite all this good news, there is one area of concern, which is housing. Historically, most recessions have been followed by housing revivals, which significantly boosted the early stages of recovery. I therefore expected housing to be a much stronger tailwind by now. While home construction and sales showed substantial momentum in 2012 and the first half of 2013, the wind has been taken out of the sails since then. Much of the slowdown in housing-market activity appears to be due to last years jump in mortgage interest rates. Although that is unlikely to reverse, other factors driving this sector should improve and I remain cautiously optimistic about the outlook for housing over the next few years.

The immediate trigger of the crisis, as you know, was a sharp decline in house prices, which reversed a previous run-up that had been fueled by irresponsible mortgage lending and securitization practices. Policymakers at the time, including myself, certainly appreciated that house prices might decline, although we disagreed about how much decline was likely; indeed, prices were already moving down when I took office in 2006. However, to a significant extent, our expectations about the possible macroeconomic effects of house price declines were shaped by the apparent analogy to the bursting of the dot-com bubble a few years earlier. That earlier bust also involved a large reduction in paper wealth but was followed by only a mild recession. In the event, of course, the bursting of the housing bubble helped trigger the most severe financial crisis since the Great Depression. It did so because, unlike the earlier decline in equity prices, it interacted with critical vulnerabilities in the financial system and in government regulation that allowed what were initially moderate aggregate losses to subprime mortgage holders to cascade through the financial system. In the private sector, key vulnerabilities included high levels of leverage, excessive dependence on unstable short-term funding, deficiencies in risk measurement and management, and the use of exotic financial instruments that redistributed risk in nontransparent ways. In the public sector, vulnerabilities included gaps in the regulatory structure that allowed some systemically important firms and markets to escape comprehensive supervision, failures of supervisors to effectively use their existing powers, and insufficient attention to threats to the stability of the system as a whole.

We're going to continue to communicate our policy intentions and to make clear that notwithstanding how the mix of policy tools changes that we intend to maintain a highly accommodative monetary policy for the foreseeable future.

And I think that message is beginning to get through. And I think that will be helpful.

More generally, we will be watching to see if the movement in mortgage rates has any material affect on housing. I mean, the main thing is to see housing continue to grow, more jobs in construction and the like.

And, as we've said, if we think that mortgage rate increases are threatening that progress, then we would have to take additional action in the monetary sphere to try to address that.

Of course, there's always scope for Congress to look at the problems that remain in the housing market in terms of people underwater, in terms of refinancing of underwater mortgages, other kinds of issues that -- that Congress could -- could look at.

But we are -- we're going to be looking at it from the perspective of whether or not the housing recovery is continuing to a degree sufficient to provide the necessary support for the overall economic recovery.

[T]he national homeownership rate has slipped nearly 4 percentage points from its 2004 high of 69 percent, and it now stands at a 15-year low.  So, although there are good reasons to be encouraged by the recent direction of the housing market, we should not be satisfied with the progress we have seen so far.

Research conducted by the Federal Reserve Bank of Cleveland has shown that a home that is simply foreclosed, but not vacant, lowers neighboring property values by up to 3.9 percent. However, if a home is foreclosed, tax delinquent, and vacant, it can lower neighboring property values by nearly two and a half times that amount. Moreover, properties that have been vacant for a substantial period of time can impose even larger costs on the community, and all too often, the private market is not likely to solve the problem on its own. In such cases, government authorities and public resources may be required.

"I'm just opposed to a pure inflation-only mandate in which the only thing a central bank cares about is inflation and not employment," Yellen says now. "I've never been opposed to having a numerical objective. I don't think the committee can operate intelligently unless people can agree on what we're trying to accomplish."

"Certainly an important part of what I try to do in my role on the committee is take my personal point of view and try to explain it as clearly as I possibly can and advocate for it," she said. "But it's not just 100 percent that. I do absolutely understand that the committee needs to make a decision and we need to find something to do that can command sufficient support."

"But monetary policy is not a panacea," she said. "There are questions about the efficacy of unconventional policy tools and their use may entail some cost."

"We failed completely to understand the complexity of what the impact of the decline - the national decline - in housing prices would be in the financial system," she said at her confirmation hearings

Without commenting on the specifics of any of these individual regulatory rules under consideration, I think it is important to note that potentially each of them--servicing requirements, capital requirements, and underwriting requirements--will affect the costs and liabilities associated with mortgage lending and thus the attractiveness of the mortgage lending business. The Federal Reserve is aware of this situation and will apply its best judgment to weigh the cost and availability of credit against consumer protection, investor clarity, and financial stability as it writes rules that are consistent with the statutory provisions that require those rules. But regardless of what the final contours of the rules are, I think the mortgage market will benefit from having them decided so that business models can be set and investments calibrated.

The foreclosure crisis that resulted from unsustainable subprime lending has persisted largely because of high unemployment rates. Thus, in order to be successful, any effort to stabilize and revitalize lower-income neighborhoods will need to consider housing through the lens of access to jobs and educational opportunities.

In particular, the failure of the housing market to respond to lower interest rates as vigorously as it has in the past indicates that factors other than financial conditions may be restraining improvement in mortgage credit and housing market conditions and thus impeding the economic recovery.

Losses in housing wealth have held back consumer spending, sapped household confidence, and reduced the ability of small-business owners to obtain credit. Further, housing issues continue to affect bank earnings and credit quality.

There should be strong encouragement for the GSEs to focus on the housing recovery so home buyers and those that already have loans can fully benefit from the lower interest rates generated by our monetary policy action. Given that Fannie Mae and Freddie Mac are currently under conservatorship by the U.S. government, I believe they should play a larger role in achieving the public policy goals inherent in addressing these housing-market problems.

I unfortunately can envision no quick or easy solutions for the problems still afflicting the housing market. Even once it begins to take hold, recovery in the housing market likely will be a long, drawn-out process.

I believe that as a country, we need to take this opportunity to rethink many aspects of our public policy programs in the context of housing finance. Home ownership has long been part of the American dream, in no little part because home owners have invested not just in their houses but in their communities. But, through the mortgage interest tax deduction and other programs, we are encouraging people to buy homes by taking on debt—and sometimes large amounts of debt. If we truly want to encourage home ownership, we should contemplate programs that provide incentives for individuals to save and become equity holders in their homes—and, by extension, in their communities.

During the mid-2000s, many forms of collateral around the world were either implicitly or explicitly backed by U.S. residential land. As I’ve described, beginning in mid-2007, it became clear that this asset had more risk than financial markets had originally appreciated. It was not clear, though, how much more risk was involved. As a result, financial markets became increasingly uncertain about how to evaluate assets backed by U.S. land. That uncertainty translated into uncertainty about the ultimate solvency of institutions holding those assets—and the ultimate solvency of any of those institutions’ creditors. Spreads in credit markets between Treasury returns and other bond returns began to widen—at first slightly and then alarmingly.