In addition, the fiscal 2016 budget package passed at the end of last year, which extended a number of tax breaks and eased caps on spending, means that fiscal policy should provide a moderate stimulus this year. I believe that these positive factors should be sufficient to offset weakness in manufacturing and business-fixed investment. Putting this all together, I expect real GDP growth of about 2 percent in 2016, slightly below the average pace of growth in this expansion, and a bit above my estimate of the potential growth of the U.S. economy. If this materializes, then we should see some further reduction in the unemployment rate to around my estimate of the rate – about 4¾ percent – that I view as consistent with stable inflation over the long term. Turning to the outlook for inflation, headline inflation on a year-over-year basis has begun to rise as the sharp falls in energy prices in late 2014 and early 2015 are removed from the calculations. However, inflation still remains well below the Federal Reserve’s 2 percent objective. As the FOMC has noted in its statements, this continued low inflation is partly due to recent further declines in energy prices and ongoing impacts of a stronger dollar on nonenergy import prices. Although energy prices will eventually stop falling and the dollar will stop appreciating, these factors appear to have had a more persistent depressing influence on inflation than previously anticipated.
We supplement this survey evidence with assessments from internal models. These models are data-driven and estimate percentiles of the distribution of possible forecast outcomes for growth and inflation. Our estimated models have indicated a greater degree of uncertainty than reflected in the U.S. SPF, and suggest downside risk to both the growth and inflation forecast. BIS central bankers’ speeches  3  But, I would caution that these models are still relatively new in terms of their development and their results need to be supplemented by judgment. Now, putting these inputs and my judgment together, I see the uncertainties around my forecast to be greater than the typical levels of the past. This assessment reflects the divergent economic signals I highlighted earlier, and is consistent with the turbulence we have seen in global financial markets. At this moment, I judge that the balance of risks to my growth and inflation outlooks may be starting to tilt slightly to the downside. The recent tightening of financial market conditions could have a greater negative impact on the U.S. economy should this tightening prove persistent and the continuing decline in energy and commodity prices may signal greater and more persistent disinflationary pressures in the global economy than I currently anticipate. I am closely monitoring global economic and financial market developments to assess their implications for my outlook and the balance of risks. U.S. Monetary Policy in a Global Environment Thus far, my remarks have focused on the U.S. outlook and the risks relative to this outlook.