But even 150,000 job gains per month would be consistent with gradually using up any remaining slack present in the U.S. labor market. Although I expect business fixed investment to begin to grow again in the second half, it will likely remain soft as profits have stagnated and election year uncertainty could act as an additional depressant. All else equal, investment tends to be weaker when uncertainty rises because this creates an incentive for businesses to delay decisions until the uncertainty is resolved. Also, trade seems likely to exert a net drag on growth. There are two factors at play here: the sluggish growth rate of aggregate demand abroad and the continuing impact of earlier dollar appreciation on U.S. export competitiveness. With respect to downside risks to the growth outlook, one that is hard to gauge is the potential fallout from the result of the recent U.K. referendum. It is widely anticipated that U.K. growth will slow as a consequence. Although the direct impact of slower U.K. growth on U.S. trade will almost certainly be very small – total U.S. exports to the U.K. are only about 0.7 percent of U.S. GDP – there are a number of other channels that could amplify the impact of the Brexit decision on U.S. economic activity. These include the potential adverse effects on European economic activity, on the perceived health of the global banking system, and on broader financial market conditions.
Second, external events – such as Brexit – can have effects that go beyond just their impact on global trade. Conversely, what we do in the United States has an impact far beyond our borders, and we need to take that into consideration in how we conduct and communicate monetary policy in the United States. Put simply, monetary policy is a two-way street, and we all need to be cognizant of that. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. 1 The US economic outlook Despite the many twists and turns in the road so far, my baseline outlook for growth and inflation in the United States has not changed much in recent months. After a weak first quarter, real GDP continued to grow sluggishly in the second quarter. On the positive side, consumer spending rose more quickly during the second quarter. On the negative side, business fixedinvestment spending continued to disappoint, residential investment was weak and inventory investment was a substantial drag on growth. Looking forward, I expect economic activity to expand at roughly a 2 percent annualized pace over the next 18 months, appreciably above that of the past three quarters. Over the remainder of this year, the economy should continue to get some lift from consumption and from a fiscal policy stance that remains mildly stimulative. Moreover, I anticipate that residential investment will rebound from its decline in the second quarter.