Federal Reserve policy statements provide a favorable outlook for the U.S. economy with solid economic growth, strong job gains, and renewed momentum heading into 2015. Real gross domestic product, our broadest measure of inflation-adjusted income and spending, grew at an annualized rate very close to 4 percent for the final three quarters of the year just past. More than 3.5 million new jobs have been created, on net, since the beginning of 2014, and at 5.5 percent, the unemployment rate is down more than a full percentage point from 12 months ago. Propelled by these strong fundamentals, and undoubtedly helped along by falling energy prices, too, real disposable personal income growth has accelerated and measures of consumer confidence have moved sharply higher.
John Taylor is of course one of the world’s most influential academic commentators on monetary policy and, I might say, one whose judgements most (if not all) of us on the SOMC usually agree with to a very great extent. One of his most notable accomplishments is, of course, the development of the well-known “Taylor Rule” as a guideline for the conduct of monetary policy. Almost every one in this room is, I suspect, at least somewhat familiar with this proposed policy rule.