On the state and local side, a rising economy should boost sales and income tax revenue, and help narrow near-term fiscal shortfalls. We also need to remain watchful for signs that low interest rates could foster a buildup of financial excesses or bubbles that might pose a medium-term risk to both full employment and price stability. Fortunately, current risk spreads on U.S. financial assets are not unduly compressed. This suggests that people are still being relatively cautious about taking on a lot of financial asset risk. On the inflation side of the ledger, there are some signs that core inflation is now stabilizing after falling for several years. At the Fed, we track core inflation (which excludes the volatile food and energy prices) because experience and research tell us that core inflation provides the best measure of whether overall inflationary pressures are building up or subsiding. Core inflation has proven quite reliable in predicting future total, or “headline” inflation rates. At the moment, both headline and core inflation remain below levels consistent with our dual mandate objectives – which most members of the FOMC consider to be 2 percent or a bit less on the personal consumption expenditures (PCE) measure. Recent evidence shows that the large amount of slack in the economy has contributed to declining inflation over the past couple of years. I expect this slack to continue to dampen price pressures in the near term. Inflation expectations are well-anchored today and we intend to keep it that way.
From peak to trough, employment declined by roughly 3 percent in Queens, far less than the roughly 7 percent plunge nationally and the 4.5 percent loss in New York City as a whole. Although borough-specific economic data are not quite as current as city-wide data, we at the New York Fed see clear indications that employment in Queens stopped declining in the first half of 2010. We hope that upcoming reports will show a sustained upturn. With prospects for the national economy improving in early 2011, the outlook for Queens’ diverse and vibrant economy – and New York City’s as a whole – seems to be brightening as well. Conclusion To sum up, the national economy experienced a pick-up in activity during the last quarter of 2010 that shows signs of continuing in 2011. Although the city’s economy saw some loss of momentum, I would not be overly discouraged. After all, soft patches are not uncommon during economic recoveries. Both nationally and regionally, unemployment remains stubbornly high, but many indicators suggest that conditions are in place for stronger growth in the coming months. Thank you for your kind attention. I would be happy to take a few questions. 6  BIS central bankers’ speeches