Much high quality work has already been done on this subject by local experts. However, they thought it might be helpful for the New York Fed, as an independent third party, to evaluate what might be done to promote competitiveness and productivity on the Island. I readily agreed that we would do so. I commissioned a team of economists from our Research group and other experts from our international and outreach teams, to analyze the challenges facing Puerto Rico. I asked them to put forward some recommendations on how to capitalize on the Island’s strengths and restore growth. The report released today on the competitiveness of Puerto Rico’s economy, is the product of their work and extensive consultation with local, national and international experts. I have  BIS central bankers’ speeches  1  read it closely and commend it to your attention. The report is intended as nonpartisan technical analysis and should be viewed in that vein. Even those who do not agree with every aspect of the analysis, I hope, will acknowledge that this is a serious, good-faith effort to examine, in detail, a number of important issues that deserve attention. Of course, many of these issues can only be considered as part of the political process. It is for the people of Puerto Rico to judge the appropriate trade-offs involved – not me, certainly, or my staff at the New York Fed. In a few moments Jamie McAndrews, executive vice president and director of research, will summarize the report and its recommendations.
More generally, there are several reasons to think that inflation will remain moderate. First, the economy continues to operate with significant slack. Second, measures of underlying inflation show little upward pressure, and the growth rate of nominal labor compensation is low and stable. Moreover, inflation expectations remain well-anchored. Taking into account all these factors along with our current stance of monetary policy, I anticipate that inflation will be slightly below our 2 percent long-run objective over the next few years. One of the challenges I face as a policymaker is how much to adjust my medium term economic forecast in response to near-term developments, particularly when there is elevated uncertainty. Although I have made some adjustments of late, they have been relatively modest to date. That is because there are important issues – such as the outlook in Europe and the degree to which we have lost underlying momentum at home – where more information is needed before making an informed judgment. Although some of the current uncertainties will take time to resolve, I can imagine material data on a number of dimensions could become available in the coming weeks and months that could lead me to adjust my forecast further. I will be paying particularly close attention to whether domestic momentum and hiring picks up now that the pay-back for the mild winter is over, and whether financial conditions, which are heavily influenced at present by developments in Europe, ease or tighten further.