For example, the fact that the rate of growth of labor compensation costs remains so subdued is consistent with this conclusion. With respect to prices, inflation has been running somewhat below the Federal Reserve’s objective of a 2 percent annualized rate for the personal consumption expenditures (PCE) deflator. The latest Congressional Budget Office forecast has the four-quarter percent change of the core PCE deflator moving up from 1½ percent in the second quarter of 2014 to 1.9 percent by the fourth quarter of 2015. As with growth, I find this forecast to be quite reasonable, but would argue that the risks are on the side that inflation moves upwards more slowly than this. First, the appreciation of the dollar and weakening of foreign growth prospects that I mentioned earlier both act to dampen inflation pressures. Second, energy production in the U.S. is rising much faster than I would have guessed just a few years ago, helping to reduce energy prices which in turn reduces a wide range of production and distribution costs. Lastly, I would note that research suggests that inflation expectations play a very important role in the inflation process. Those expectations remain well anchored at the present time, despite concerns by some that the amount of slack in the economy has declined substantially. I am quite confident that those expectations will remain well anchored in the future, limiting the increase in inflation set in motion by faster growth and further reductions in slack. So what does this imply for monetary policy?
And there’s some especially good news to report from the Capital region’s manufacturing sector: jobs are growing, and growing quite strongly – a testament to the success of the area’s burgeoning high tech sector. Since the recovery began, the area has added over 4,000 manufacturing jobs, many of which are tied to computers and electronics. That’s an increase of nearly 25 percent. This pace of job growth is four times as great as the national pace. In fact, there are now more people employed in the Capital region’s manufacturing sector than before the recession. Not many places can say that, and this is certainly not true for the nation as a whole. In part, the success of local manufacturing reflects the presence of strong partnerships between industry and higher education. These cooperative arrangements, which help in the creation, development and commercialization of new products and processes, drive innovation and put local companies at the leading edge of technology. Moreover, these partnerships directly support local jobs. Not only are students gaining real world experience by working in shared facilities while they are in school, but strong connections between local businesses and higher education institutions help workers train for jobs that are available, and help employers find the skilled workers they need. During my last trip to the region, I saw firsthand how universities and companies can successfully work together during my visits to the State University of New York Nanotech Center and the production facilities at Global Foundries.