Dancing Days Are Here Again: The Long Road Back to Maximum Employment

The U.S. economy is on the cusp of full health, supported by highly accommodative monetary policy in recent years. The labor market is nearing maximum employment. Inflation remains too low, but measures of its underlying trend suggest that it is not far from the Fed’s 2% target. With real progress toward these goals, the conversation has turned to normalizing policy. The following is adapted from a presentation by the president and CEO of the Federal Reserve Bank of San Francisco to community leaders in Portland, OR, on December 2. It’s that time of year again, a time when all Americans, regardless of faith or origin, participate in a holiday ritual. I’m talking, of course, about the year in review. So in the spirit of the season, I’d like to take a look back over the past year for the economy and monetary policy, to where we find ourselves today, and where I see us headed. The economic snapshot The headline is that we’re now in the seventh year of the expansion and the economy still has a good head of steam. Consumer spending continues to increase at a solid pace, auto sales should come in at their highest since the early 2000s, and strong fundamentals point to continued strength going forward. There are some upside risks to the outlook, specifically an even stronger and faster rebound in housing