Monetary Policy Report submitted to the Congress on July 15, 2015, pursuant to section 2B of the Federal Reserve Act

“The overall condition of the labor market continued to strengthen over the first half of 2015, albeit at a more moderate pace than in 2014. So far this year, payroll employment has increased by about 210,000 on average per month compared with the robust 260,000 average in 2014, and the unemployment rate has declined about 1/4 percentage point to 5.3 percent in June, close to most Federal Open Market Committee (FOMC) participants’ estimates of its longer-run normal level. Other measures of labor market activity also point to ongoing improvement in labor market conditions even as they continue to suggest that further improvement is needed to achieve the Committee’s maximum employment mandate. In particular, the labor force participation rate has generally been holding steady but nevertheless remains below most assessments of its trend, and the number of people working part time when they would prefer full-time employment has declined further but remains elevated. And, while some measures of labor compensation are starting to rise more rapidly, they nevertheless remain consistent with the view that labor resources likely are still not being fully utilized. Consumer price inflation remains below the FOMC’s longer-run goal of 2 percent. The price index for personal consumption expenditures (PCE) edged up only 1/4 percent over the 12 months ending in May, held down by the pass-through of a sizable decline in crude oil prices over the second half of last year. However, consumer energy prices appear to have stabilized in recent months. Changes in the PCE price index excluding food and energy items, which are often a better indicator of where overall inflation will be in the future, also remained relatively low; this index rose 1-1/4 percent over the 12 months ending in May, partly restrained by declines in the prices of non-energy imported goods. Meanwhile, survey-based measures of longer-run inflation expectations have remained relatively stable; market-based measures of inflation compensation have moved up somewhat from their lows earlier this year but remain below levels that prevailed until last summer.”