Inflation has been low, with consumer prices rising at an average annual rate of about 1 percent in the first half of this year, and we anticipate it will remain subdued over the next couple of years. 3 Slack in labor and product markets has damped wage and price pressures, and rapid productivity increases have helped firms control their production costs.
Meanwhile, measures of expected inflation generally have remained stable. Fiscal challenges for state governments Cuts in state and local programs and employment are also weighing on economic activity. These cuts principally reflect the historically large decreases in state tax revenues during the recession.