1 tilley

The Economy and Monetary Policy Gearing for the Future in Risk Management September 19, 2014 Luke A. Tilley

* The views expressed today are my own and not necessarily those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.

Contributions to GDP Growth 6 Government Investment

Net Exports Consumption

0.3

4

Percent (%)

2.6 2 1.7 0

-0.4

-2

-4 2012 Source: Bureau of Economic Analysis via Haver Analytics Last Point Plotted: 2014:Q2

2013

2014

U.S. Monthly Job Growth 400 350

Thousands

300

250 200 150 100 50 0

2011 Jan.-Aug. = 165

2012 Jan.-Aug. = 179

Source: Bureau of Labor Statistics via Haver Analytics Last Point Plotted: August 2014

2013 Jan.-Aug. = 197

2014 Jan.-Aug. = 215

U.S. Unemployment Rates 20

U6 = U3 + all under employed and discouraged workers

Percent (%)

15

12.0 10

6.1

5

U3 – Official Unemployment Rate

0 '00

'03

Source: Bureau of Labor Statistics via Haver Last Point Plotted: August 2014

'06

'09

'12

Inflation and Core Inflation

% Change Year-over-year

6

4

PCE Price Index

2

0 Core PCE Price Index -2 '06

'08

Source: Bureau of Economic Analysis via Haver Last Point Plotted: July 2014

'10

'12

'14

FOMC Forecast - Real GDP Growth

Source: FOMC Summary of Economic Projections – Sept. 17, 2014

FOMC Forecast – Unemployment

Source: FOMC Summary of Economic Projections – Sept. 17, 2014

FOMC Forecast - Inflation

Source: FOMC Summary of Economic Projections – Sept. 17, 2014

Recent Monetary Policy Action Asset Purchases (“QE”) • In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases.

• Now $15 billion per month.

Federal Funds Rate • Target stays at 0%-0.25% • The Committee continues to anticipate…that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

Source: FOMC Statement – Sept. 17, 2014

Appropriate Pace of Policy Firming Midpoint of target range or target level for the federal funds rate

Source: Overview of FOMC Participants’ Assessments of Appropriate Monetary Policy, Sept. 17, 2014

Treasury Yield Curves – Post “Great Recession” 5

3rd Quarter of each year shown except 2014

% Yield

4 2010

3

2011 2012

2

2013 2014Q2

1 0 0

5

10

15 20 Term (years)

Source: Board of Governors via Haver Analytics

25

30

35

Private Market 10-Year Treasury Yield Forecasts 6 SPF

BCFF

CBO

Percent (%)

5 4 3 2 1 0 2014

2015

2016

2017

2018

Source: Congressional Budget Office (CBO) The Budget & Economic Outlook – Feb. 2014; Blue Chip’s Financial Forecast (BCFF) –Mar. 2014; Survey of Professional Forecasters (SPF) – 2014:Q3

Luke A. Tilley, Ph.D. Officer and Economic Advisor luke.tilley@phil.frb.org