The economy should grow back towards the 3 percent that I estimate to be our long-term potential.

As reported by Bloomberg News 

For better or worse, we cannot escape the need for information on output gaps so that we can forecast the future path of inflation and evaluate the current setting of our monetary policy instruments.  However, we also need to recognize that because measures of potential output and output gaps are so uncertain, we must always be aware that they might be providing misleading signals as to the future course of inflation and the appropriateness of the stance of policy.  In assessing whether there is slack in the economy, we at central banks look not only at our estimates of output gaps but also at a wide range of indicators drawn from the labor, product, and financial markets to provide us with a perspective on the balance of supply and demand in the economy...

The bottom line is that we must never take our eye off of the inflation ball. 

In particular, over the past few decades the natural unemployment rate and the path of potential output have apparently moved around quite substantially. If we do not recognize the potential for such shifts, they can pose serious pitfalls for the conduct of monetary policy...

To be sure, central banks need to form some views about the economy's potential to produce on a sustained basis. After all, as I have already noted, the amount of slack in the economy is a key determinant of inflation. But, rather than focusing on fixed estimates of potential output or the natural rate of unemployment, central banks should take an eclectic approach in assessing the overall balance of economic activity relative to productive capacity. In other words, in pursuing the dual mandate, the central bank should recognize that a wide variety of indicators drawn from labor, product, and financial markets provide information about the overall balance of supply and demand in the economy. In addition, central banks should use information from various price indicators to tell them whether the economy is overheating or running well below productive capacity.

We do not have any fixed speed limit in mind when we think about the economy going forward. We do not have any fixed number for the unemployment rate.

Rather, we are looking at the overall balance of supply and demand, looking at the evolution of inflation, and trying to ensure that there's a reasonable balance between demand and supply so that our economy can continue to grow at a sustainable, moderate pace going forward.

From the Senate Q&A session

The rise in productivity growth has increased the economy’s potential output growth. At present, many economists estimate the potential growth rate at between 3 and 3.5 percent.

I expect real GDP to grow by about 3 percent, which I estimate to be its underlying trend rate. That kind of growth should hold the unemployment rate to just below 5 percent. The outlook for inflation is more uncertain. Inflation stopped accelerating in the last few months, but whether it will continue to recede in the coming year is not yet clear. Additional monetary policy action may be needed to keep us moving along the path to price stability. 

We've got what I call now a bimodal economy.  We have two weak sectors:  housing, which is contracting, and automobiles --  motor vehicle production, which is also a weak sector.  But the rest of the economy is doing just fine.  And when you put it all together into an overall economic picture, we have an economy that continues to grow ever so slightly below trend. 

[T]he trend rate of GDP growth — by which I mean the rate consistent with trend growth in productivity and the labor force — is more like 3 percent.

Perhaps the most intractable problems surround the measurement of such key concepts as the equilibrium real interest rate, trend productivity, and potential output.  We never observe these variables, which often figure prominently in our deliberations, but can only infer them from the behavior of other variables that are themselves subject to mismeasurement...

These revisions may or may not also have implications for the level of the real federal funds rate consistent with longer-run macroeconomic stability.

With regard to the labor force, research by the Board's staff highlights the role of demographic factors in determining the number of people available to work in the years just ahead. Most notably, the impending retirement of the baby boomers and the fact that women are no longer increasing their participation in the labor force at the rate they were in the past will tend to restrain the future growth rate of the U.S. labor force. All else being equal, these developments translate into a slower rate of growth of potential output.

In the medium term, because the factors that affect potential output and thus aggregate supply also tend to affect aggregate demand, slower growth of potential output does not necessarily mean that inflation will be higher or that monetary policy will have to be tighter.  Rather, the implications for monetary policy of a possible slowing in the growth of potential output depend on the extent to which such a slowing alters the balance of supply and demand in the economy. For example, as we saw in the second half of the 1990s, changes in expected productivity growth and potential output can significantly affect aggregate demand through their influences on income expectations and asset prices. The problem for policymakers is to identify, in real time, any changes in the prospective growth rate of potential output and to anticipate the accompanying effects on the balance of supply and demand.

Up until July, most economists would have said that the rate was somewhere close to 3.5 percent... [However], the commonsense estimate of trend growth has now been lowered slightly. My own view is that trend growth is closer to 3 percent than 3.5 percent. Some even claim that trend growth is as low as 2.8 percent. I don’t think it is useful to quibble over two-tenths of a percentage point, since our ability to measure productivity is so fraught with problems. Nevertheless, almost everyone agrees that estimates of trend growth are now lower.

However, research at the Chicago Fed and elsewhere suggests that, given the slower growth in the labor force, monthly increases of roughly 100,000 are most likely consistent with potential. This transition has not yet been fully appreciated by many market observers.  1

The changes in labor force growth also imply that, in the absence of changes in productivity trends, our estimates of potential GDP growth should be revised down somewhat to around 3 percent.

Although productivity growth has stepped down from the scorching pace seen early in the recovery, factors remain in place for continued solid growth over the next few years. One element is capital deepening, that is, the rate at which the stock of equipment, software, and so forth is expanding relative to the number of workers, or--to put it even more simply, how fast workers are getting more of the tools they need. As I mentioned earlier, business investment spending has been strong in recent years and seems likely to remain at a high level for some time. Another element is improvements in the efficiency of how businesses do business. Here it appears that the flexibility of business processes and product, financial, and labor markets in the United States will continue to allow for the quick adoption of new technologies and the efficient reallocation of resources.

Now that labor market conditions are fairly firm, the economy is transitioning to growth at a trend rate of around 3 percent per year — a pace at which job growth will match the growth in the number of workers over time.