Monetary Policy Report, February 24, 2015

second half of last year and into early 2015, and labor market conditions moved closer tothose the Federal Open Market Committee(FOMC) judges consistent with its maximumemployment mandate. Since the middle of lastyear, monthly payrolls have expanded by about280,000, on average, and the unemploymentrate has declined nearly 1/2 percentage pointon net. Nevertheless, a range of labor marketindicators suggest that there is still room forimprovement. In particular, at 5.7 percent, theunemployment rate is still above most FOMCparticipants' estimates of its longer-runnormal level, the labor force participation rateremains below most assessments of its trend, an unusually large number of people continueto work part time when they would preferfull-time employment, and wage growth hascontinued to be slow.A steep drop in crude oil prices since themiddle of last year has put downward pressureon overall inflation. As of December 2014, the price index for personal consumptionexpenditures was only 3/4 percent higherthan a year earlier, a rate of increase thatis well below the FOMC's longer-run goalof 2 percent. Even apart from the energysector, price increases have been subdued.Indeed, the prices of items other than foodand energy products rose at an annual rate ofonly about 1 percent over the last six monthsof 2014, noticeably less than in the first halfof the year. The slow pace of price increasesduring the second half was likely associated, in part, with falling import prices and perhapsalso with some pass-through of lower oilprices. Survey-based measures of longer-terminflation expectations have remained stable;however market-based measures of inflationcompensation have declined since last summer.