Mr. Greenspan presents the US Federal Reserve's mid-year report on monetary policy  (Central Bank Articles and Speeches, 21 Jul 98)
Central bank: fed | Type: speech | Date: 1998-07-21

Mr. Greenspan presents the US Federal Reserve's mid-year report on monetary policy Testimony by the Chairman of the Board of Governors of the US Federal Reserve Sys Mr. Alan Greenspan, before the Committee on Banking, Housing, and Urban Affairs of the US Senat 21/7/98.Mr. Chairman and members of the Committee, I appreciate this opportunity to pre the Federal Reserve's mid-year report on monetary policy.Overall, the performance of the US economy continues to be impressive.

Over the part of the year, we experienced further gains in output and employment, subdued prices, and long-term interest rates.

Important crosscurrents, however, have been impacting the economy.

Wi markets very tight and domestic final demand retaining considerable momentum, the risks of a p inflation remain significant.

But inventory investment, which was quite rapid late last year a year, appears to have slowed, perhaps appreciably.

Moreover, the economic and financial tro Asian economies are now demonstrably restraining demands for US goods and services - and t troubles could intensify and spread further.

Weighing these forces, the Federal Open Market Co chose to keep the stance of policy unchanged over the first half of 1998.

However, should pre labor resources begin to show through more impressively in cost increases, policy action may counter any associated tendency for prices to accelerate before it undermines this ext expansion.

## Recent DevelopmentsWhen I appeared before your committee in February, I

noted that a key question monetary policy was whether the consequences of the turmoil in Asia would be sufficient to inflationary tendencies that might otherwise result from the strength of domestic spending and labor markets.

After the economy's surge in 1996 and, especially, last year, resource u particularly that of the labor force, had risen to a very high level.

Although some signs stepped-up increases in productivity, the speed at which the demand for goods and services growing clearly exceeded the rate of expansion of the economy's long-run potential to p Maintenance of such a pace would put even greater pressures on the economy's resources, thre the balance and longevity of the expansion.However, it appeared likely that the difficulties being encountered by Asian econ by cutting into US exports, would be a potentially important factor slowing the growth of demand in the United States.

But uncertainties about the timing and dimensions of that deve were considerable given the difficulties in assessing the extent of the problems in East Asia.In the event, the contraction of output and incomes in a number of Asian economie turned out to be more substantial than most had anticipated.

Moreover, financial markets in A emerging market economies generally have remained unsettled, portending further difficult adju The contraction in Asian economies, along with the rise in the foreign exchange value of the d 1997, prompted a sharp deterioration in the US balance of trade in the first quarter.

Nonet American economy proved to be unexpectedly robust in that period.

The growth of real GDP not failed to slow, it climbed further, to about a 5½ percent annual rate in the first quarter, a current national income accounts.

Domestic private demand for goods and services - including consumption expenditures, business investment, and residential expenditures - was exceptionallyEvidently, optimism about jobs, incomes, and profits, high and rising wealth-toratios, low financing costs, and falling prices for high-tech goods fed the appetites of ho businesses for consumer durables and capital equipment.

In addition, inventory investment con significantly to growth in the first quarter; indeed, the growth of stocks of materials and go that of overall output by a wide margin during the first quarter, adding 1 percentage po annualized growth rate of GDP.

Although accumulation of some products likely was unintended, sindicate that much of the stockbuilding probably reflected firms' confidence in the pros continued growth.As evidence piled up that the economy continued to run hot during the winter Federal Reserve's concerns about inflationary pressures mounted.

Domestic demand clearly had underlying momentum than we had anticipated, supported in part by financial conditions that we accommodative.

Credit remained extremely easy for most borrowers to obtain; intermediatelong-term interest rates were at relatively low levels; equity prices soared higher, de disappointing earnings reports; and growth in the monetary aggregates was rapid.

Indeed, the Asia, by lowering longer-term US interest rates - through stronger preferences for dollar inve expectations of slower growth ahead - and by reducing commodity prices, probably added to the forces boosting domestic spending in the first half, especially in the interest-sensitive housi robust expansion of demand tightened labor markets further, giving additional impetus to th trend in labor costs.

Inflation was low - though, given the lags with which monetary policy economy and prices, we had to be mainly concerned not with conditions at the moment but with likely to prevail many months ahead.

In these circumstances, the Federal Open Market Comm elected in March to move to a state of heightened alert against inflation, but left the sta unchanged.Although national income and product data for the second quarter have not yet published, growth of US output appears to have slowed sharply.

The auto strike has brought Motor's production essentially to a halt, probably reducing real GDP in the second quarter ½ percentage point at an annual rate.

The limited available information on inventory investmen that stockbuilding dropped markedly from its unsustainable pace of the first quarter.

In add slower pace of inventory building, Asian economies have continued to deteriorate, further ret exports in recent months.Indeed, readings on the elements that make up the real GDP have led many analyst anticipate a decline in that measure in the second quarter, after the first-quarter surg upcoming revisions to the national income accounts, such assessments would have to be regar conjectural.

It is worth noting in any case that other indicators of output, including work manufacturing production, show a somewhat steadier, though slowing, path over the first half of And underlying trends in domestic final demand have remained strong, imparting impetus t continuing economic expansion.During the first half of the year, measures of resource utilization diverged.

Pre manufacturing facilities appeared to be easing.

Plant capacity was growing rapidly as a result investment.

And growth of industrial output was dropping off from its brisk pace of 1997, im reflecting the deceleration in world demand for manufactured goods that resulted from th economic difficulties.But labor markets, in contrast, became increasingly taut during the first hal payroll jobs rose about one-and-one-half million over the first six months of the year.

T unemployment rate dropped to a bit below 4½ percent in the second quarter, its lowest level decades.

Firms resorted to a variety of tactics to attract and retain workers, such as paying of monetary bonuses and raising basic wage rates.

But, at least through the first quarter, th rising wage bill on production costs were moderated by strong gains in productivity.Indeed, inflation stayed remarkably damped during the first quarter.

The consumer index as well as broader measures of prices indicate that inflation moved down further, ev economy strengthened.

Although declining oil prices contributed to this development, pricing le the goods-producing sector more generally was held in check by reduced demand from Asia that, other things, has led to a softening of commodity prices, a strong dollar that has contribute prices on many imports, and rising industrial capacity.

Service price inflation, less ininternational events, has remained steady at about a 3 percent rate since before the begin crisis.Some elements in the goods price mix clearly were transitory.

Indeed, the more price data suggest that overall consumer price inflation moved up in the second quarter.

But, increase remained moderate.In any event, it would be a mistake for monetary policy makers to focus on any index in gauging inflation pressures in the economy.

Although much public attention is direc CPI, the Federal Reserve monitors a wide variety of aggregate price measures.

Each is design particular purpose and has its own strengths and weaknesses.

Price pressures appear especially some of the measures in the national income accounts, which are available through the first qu chain-weight price index for personal consumption expenditures excluding food and energy, for e rose 1.5 percent over the year ending in the first quarter, considerably less than the 2.3 per core CPI over the same period.

An even broader price measure, that for overall GDP, rose 1.4 These indexes, while certainly subject to many of the measurement difficulties the Bureau Statistics has been grappling with in the CPI, have the advantages that their chain-weighting a aspects of so-called substitution bias and that already published data can be revised to inco information and measurement techniques.

Taken together, while the various price indexes show differences, the basic message is that inflation to date has remained low.

## Economic Fundamentals: The Virtuous CycleSo

far this year, our economy has continued to enjoy a virtuous cycle.

Eviden accelerated productivity has been bolstering expectations of future corporate earnings, ther still further increases in equity values, and the improvements in productivity have been helpi inflation.

In the context of subdued price increases and generally supportive credit condit equity values have provided impetus to spending and, in turn, the expansion of output, employm productivity-enhancing capital investment.The essential precondition for the emergence, and persistence, of this virtuous arguably the decline in the rate of inflation to near price stability.

In recent years, contin price inflation and expectations that it will persist have promoted stability in financial fostered perceptions that the degree of risk in the financial outlook has been moving ever lo perceptions, in turn, have reduced the extra compensation that investors require for making l taking ownership positions in, private firms.

With risks in the domestic economy judged to be and equity capital have been readily available for many businesses, fostering strong investmen mortgage interest rates have allowed many households to purchase homes and to refinance outst debt.

The reduction in debt servicing costs has contributed to an apparent stabilization of strains on the household sector that seemed to emerge a couple of years ago and has buoyed c demand.To a considerable extent, investors seem to be expecting that low inflation and productivity growth will allow the extraordinary growth of profits to be extended into the dis Indeed, expectations of earnings growth over the longer term have been undergoing continual revision by security analysts since early 1995.

These rising expectations have, in turn, driven sharply higher and credit spreads lower, perhaps in both cases to levels that will be diffic unless the virtuous cycle continues.

In any event, primarily because of the rise in stock p $12½ trillion has been added to the value of household assets since the end of 1994.

Probably percent of these largely unrealized capital gains have been transformed into the purchase of services in consumer markets.

But that increment to spending, combined with the sharp incr equipment investment, which has stemmed from the low cost of both equity and debt relative to e profits on capital, has been instrumental in propelling the economy forward.The consequences for the American worker have been dramatic and, for the most p highly favorable.

A great many chronically underemployed people have been given the opportun work, and many others have been able to upgrade their skills as a result of work experience, increases in on-the-job training, or increased enrollment in technical programs in community and elsewhere.

In addition, former welfare recipients appear to have been absorbed into the wor significant numbers.Government finances have been enhanced as well.

Widespread improvement has been evident in the financial positions of state and local governments.

In the federal sector, the huge realized capital gains and other incomes related to stock market advances, coupled with markedly higher corporate profits, have joined with restraint on spending to produce a unifi surplus for the first time in nearly three decades.

The important steps taken by the Congre Administration to put federal finances on a sounder footing have added to national saving, pressures on credit markets.

The paydown of debt associated with the federal surplus has helpe down longer-term interest rates, which in turn has encouraged capital formation and reduc burdens.

Maintaining this disciplined budget stance would be most helpful in supporting a con of our current robust economic performance in the years ahead.The fact that economic performance has strengthened as inflation subsided shoul have been surprising, given that risk premiums and economic disincentives to invest in producti diminish as the economy approaches price stability.

But the extent to which strong growth and h force utilization have been joined with low inflation over an extended period is, nev exceptional.

So far, at least, the adverse wage-price interactions that played so central a rol inflation higher in many past business expansions - eventually bringing those expansions to an not played a significant role in the current expansion.For one thing, increases in hourly compensation have been slower to pick up than i other recent expansions, although, to be sure, wages have started to accelerate in the past co as the labor market has become progressively tighter.

In the first few years of the expansion, rate of rise in hourly compensation seemed to be, in part, a reflection of greater concerns am about job security.

We now seem to have moved beyond that phase of especially acute concern, the flux of technology may still be leaving many workers with fears of job skill obsolesce willingness to trade wage gains for job security.

In the past couple of years, of course, work had to press especially hard for nominal pay gains to realize sizable increases in their re contrast to the pattern that developed in several previous business expansions, when workers substantial increases in pay just to cover increases in the cost of living, consumer price generally well-behaved in the current expansion.A couple of years ago - almost at the same time that increases in total compensation began trending up in nominal terms - evidence of a long-awaited pickup in the gr labor productivity began to show through more strongly in the data; and this accelerated i output per hour has enabled firms to raise workers' real wages while holding the line on price Gains in productivity usually vary with the strength of the economy, and the favorable resul have observed during the past two years or so, when the economy has been growing more rapidly, certainly overstate the degree of structural improvement.

But evidence continues to mount that of productivity has accelerated, even if the extent of that pickup is as yet unclear.

Si technological improvements are all around us, and the benefits are evident not only in industries but also in production processes that have long been part of our industrial economy.Those technological innovations and the rapidly declining cost of capital equipme embodies them in turn seem to be a major factor behind the recent enlarged gains in prod Evidently, plant managers who were involved in planning capital investments anticipated significant increase in the real rates of return on facilities could be achieved by exploiting technologies.

If that had been a mistake on their part, one would have expected capital invest up briefly and then start down again when the lower-than-anticipated rates of return developehave instead seen sustained gains in investment, indicating that hoped-for rates of return app been realized.Notwithstanding a reasonably optimistic interpretation of the recent produc numbers, it would not be prudent to assume that even strongly rising productivity, by itself, non-inflationary future.

Certainly wage increases, per se, are not inflationary, unless productivity growth, thereby creating pressure for inflationary price increases that can undermine economic growth and employment.

Because the level of productivity is tied to an imp degree to the stock of capital, which turns over only gradually, increases in the trend productivity probably also occur rather gradually.

By contrast, the potential for abrupt acc nominal hourly compensation is surely greater.As I have noted in previous appearances before Congress, economic growth at r experienced on average over the past several years would eventually run into constraints as th of unemployed people available to work is drawn down.

The annual increase in the workin population (from 16 to 64 years of age), including immigrants, has been approximately 1 perce in recent years.

Yet employment, measured by the count of persons who are working rather than count of jobs, has been rising 2 percent a year since 1995, despite the acceleration in th output per hour.

The gap between employment growth and population growth, amounting to about million persons a year on average since the end of 1995, has been made up, in part, by a dec number of individuals who are counted as unemployed - those persons who are actively seeking wo approximately 650,000 a year, on average, over the past two and one-half years.

The remainde gap has reflected a rise in labor force participation that can be traced largely to a decl 300,000 a year in the number of individuals (aged 16 to 64) wanting a job but not actively se Presumably, many of the persons who once were in this group have more recently become active successful job-seekers as the economy has strengthened, thereby preventing a still sharper d official unemployment rate.

In June, the number of persons aged 16 to 64 who wanted to work b did not have jobs was 10.6 million on a seasonally adjusted basis, roughly 6 percent of the w population.

Despite an uptick in joblessness in June, this percentage is only fractionally abo low reached in May for these data, which can be calculated back to 1970.Nonetheless, a strong signal of inflation pressures building because of compen increases markedly in excess of productivity gains has not yet clearly emerged in this expansi nonfinancial corporations (our most recent source of data on consolidated income statements), costs seem to have accelerated from their lows, but the rates of increase in both unit labor c unit costs are still quite low.Still, the gap between the growth in employment and that of the working-age popul will inevitably close.

What is crucial to sustaining this unprecedented period of prosperity i reasonably promptly, given already stretched labor resources, and that labor markets find consistent with sustained growth marked by compensation gains in line with productivity ad Whether these adjustments will occur without monetary policy action remains an open question.

## Foreign DevelopmentsWhile the United States has been benefiting from a virtuous economic cycle, a numb other economies unfortunately have been spiraling in quite the opposite direction.

The Unit Canada, and Western Europe have been enjoying solid economic growth, with relatively low inf and declining unemployment, but the economic performance in many developing and transition na and Japan has been deteriorating.

How quickly the latter erosion is arrested and reversed wi factor in shaping US economic and financial trends in the period ahead.

With all that is at st be difficult to overstate how crucial it is that the authorities in the relevant econom implement effective policies to correct the structural problems underlying recent weaknesse promote sustainable economic growth before patterns of reinforcing contraction become diff contain.Conditions in Asia are of particular concern.

Aggregate output of the Asian deve economies has plunged, with particularly steep declines in Korea, Malaysia, Thailand, and I Even the economies of the stalwart tigers - Hong Kong, Singapore, and Taiwan - have sof Economic growth in China has also slowed, owing largely to the currency depreciations amo neighbors and the sharp declines in their demand for imports.Russia has also experienced some spillover from the Asian difficulties, but R problems are mostly homegrown.

Large fiscal deficits stem from high effective marginal tax r encourage avoidance and do not raise adequate revenue.

This and the recent declines in prices other commodities have rendered Russian financial markets and the ruble vulnerable, particula environment of heightened concern about all emerging markets.

The Russian government has rec promulgated a set of new policy measures in connection with an expanded IMF support package effort to address these problems.In Latin America, conditions vary: Economies that are heavily dependent on expor oil and other commodities have suffered as prices of those items have fallen, and several count region have received more intensive scrutiny in international capital markets, but, on the w American economies continue to perform reasonably well.Disappointingly, economic activity in Japan - a crucial engine of Asian eco growth - has turned down after a long period of subpar growth.

Gross domestic product fe 5¼ percent annual rate in the first quarter.

More recently, confidence of households and busi continued to erode, the sharp contraction elsewhere in Asia has fed back onto Japan, and the domestic demand for goods and services in that country has been further constrained by a m credit crunch.

Nonperforming loans have risen sharply as real estate values fell following the the asset bubble in 1991.

Problems in the banking sector, exacerbated by the broader Asian crisis, have led to market concerns about the adequacy of the capital of many Japanese banks engendered a premium in the market for Japanese banks' borrowing.

This resulting squeeze to margins has led to a reluctance to lend in dollars or yen.

In response to the weakening ec deteriorating banking situation, the Japanese yen has tended to weaken significantly, in of markets, against the dollar and major European currencies.As you know, we have sought to be helpful in the Japanese government's effort stabilize their economy and financial system, reflecting our awareness of the important role th financial and economic performance plays in the world economy, including that of the United St have consulted with the relevant Japanese authorities on methods for resolving difficultie banking system and have urged them to take effective measures to stimulate their economy.

I bel the Japanese authorities recognize the urgency of the situation.That a number of foreign economies are currently experiencing difficulties i surprising.

Although many had previously realized a substantial measure of success in develop economies, a number had leaned heavily on command-type systems rather than relying primaril market mechanisms.

This characteristic has been evident not only in their industrial sect banking where government intervention is typically heavy, where long-standing personal and co relationships are the predominant factor in financing arrangements, and where market-based assessments are the exception rather than the rule.

Recent events confirm that these sorts of s ill-suited to today's dynamic global economy, in which national economies must be capable of flexibly and rapidly to changing conditions.Responses in countries currently experiencing difficulties have varied consid Some have reacted quickly and, in general terms, appropriately.

But in others, a variety o considerations appear to have militated against prompt and effective action.As a consequence, the risks of further adverse developments in these economies r substantial.

And given the pervasive interconnections of virtually all economies and financial the world today, the associated uncertainties for the United States and other developed economi substantial as well.In the current circumstances, we need to be aware that monetary policy tightening in the United States could have outsized effects on very sensitive financial markets i development that could have substantial adverse repercussions on US financial markets and, ov on our own economy.

But while we must take account of such foreign interactions, we must be that our responses ultimately are consistent with a monetary policy aimed at optimal performan US economy.

Our objectives relate to domestic economic performance, and price stability and ma sustainable economic growth here at home would best serve the long-run interests of troubled markets and economies abroad.

## The Economic OutlookThe Federal Open Market Committee believes that the conditions for continued gro with low inflation are in place here in the United States.

As I noted previously, an importa policy is how the imbalance of recent years between the demand for labor and the growth working-age population is resolved.

In that regard, we see a slowing of the growth in aggrega as a necessary element in the mix.At this time, some of the key factors that have supported strong final dema domestic purchasers remain favorable.

Although real short-term interest rates have risen as funds rate has been held unchanged while inflation expectations have declined, the financial that have fostered the strength in demand are still in place.

With their incomes and wealth hav a strong upward track, American consumers remain quite upbeat.

For businesses, decreasing cost high rates of return on investment, as well as the scarcity of labor, could keep capital spen These factors suggest some risk that the labor market could get even tighter.

And even if i under prevailing tight labor markets increasingly confident workers might place gradually e pressures on wages and costs, which would eventually feed through to prices.But a number of factors likely will serve to damp growth in aggregate demand, help foster a reasonably smooth transition to a more sustainable rate of growth and reasonable labor markets.

We have yet to see the full effects of the crisis in East Asia on US emplo income.

Residential and business fixed investment already have reached such high levels tha gains approaching those experienced recently would imply very rapid growth of the stocks of and plant and equipment relative to income trends.

Moreover, business investment will be da recent indications of a narrowing in domestic operating profit margins prompt a reassessmen expected rates of return on investment in plant and equipment.

Reduced prospects for the capital would not only affect investment directly but could also affect consumption if stock p to a less optimistic view of earnings prospects.Of course, the demand for labor that is consistent with a particular rate of outp also could be lowered if productivity growth were to increase more.

And, on the supply side of market, faster growth of the labor force could emerge as the result of increased immigration retirements.

Nonetheless, it appears most probable that the necessary slower absorption of employment will reflect, in part, a deceleration of output growth, as a consequence of evolv forces.

Failing that, firming actions on the part of the Federal Reserve may be necessary to e of expansion that is capable of being sustained.Thus, members of the Board of Governors and presidents of the Federal Reserve Ba anticipate a slowing in the rate of economic growth.

The central tendency of their forecasts GDP will rise 3 to 3¼ percent over 1998 as a whole and 2 to 2½ percent in 1999.

With the ri demand for workers coming into line with that of the labor force, the unemployment rate is ex change little from its current level, finishing next year in the neighborhood of 4½ to 4¾ perceInflation performance will be affected by developments abroad as well as those h home.

The extent and pace of recovery of Asian economies currently experiencing a severe do will have important implications for prices of energy and other commodities, the strength of and competitive conditions on world product markets.

Should the situation abroad remain un these factors would probably continue to contribute to good price performance in the United St period ahead.

But it is important to recognize that the damping influence of these factors on mostly temporary.

At some point, the dollar will stop rising, foreign demand will begin to re oil and other commodity prices will stop falling and could even back up some.

Indeed, a brisk in foreign economic activity, should that occur, would add, at least temporarily, to price pre United States.On a more fundamental level, it is the balance of supply and demand in labor and p markets in the United States that will have the greatest effect on inflation rates here. previously, wage and benefit costs have been remarkably subdued in the current expansion.

None an accelerating trend in wages has been apparent for some time.In addition, a gradual upward tilt in benefit costs has become evident of late.

A factors - including the strength of the economy and rising equity values, which have reduced t payments into unemployment trust funds and pension plans, and the restructuring of the hea sector - have been working to keep benefit costs in check in this expansion.

But, in the med least, the most recent developments suggest that the favorable trend may have run its course.

T of price increases for medical services seems to have come to a halt, at least for a time, cost-saving shift to managed care having been largely completed, the potential for businesses further savings in that regard appears to be rather limited at this point.

There have been a instances this past year of employers boosting outlays for health benefits by substantial amounGiven that compensation costs are likely to accelerate at least a little further, trends and profit margins will be key to determining price performance in the period ahead.

Wh recent strong performance of productivity can be extended remains to be seen.

It does seem l productivity calculated for the entire economy using GDP data weakened in the second quarte development clearly owed, at least in some degree, to the deceleration of output in that manufacturing, where our data are better measured, productivity appears still to have registe increase.

We will be closely monitoring a variety of indicators to assess how productivity is in the months ahead.Monetary policymakers see the most likely outcome as modestly higher inflation rat the next one and one-half years.

The central tendency of monetary policymakers' CPI inflation is for an increase of 1¾ to 2 percent during 1998 and 2 to 2½ percent next year.

As noted, th the special factors reducing inflation over the past year or so, such as the decline in o account for some of this uptick.

But the Federal Open Market Committee will need to remain part alert to the possibility that more fundamental imbalances are increasing inflationary pres Committee would need to resist vigorously any tendency for an upward trend, which could be embedded in the inflationary process.The Committee recognizes that significant risks attend the outlook:

One is th impending constraint from domestic labor markets could bind more abruptly than it has t intensifying inflation pressures.

The other is the potential for further adverse developme which could reduce the demand for US goods and services more sharply than anticipated and would thereby ease pressures on labor markets.

While we expect that the situation will develop smoothly, the Committee believes that, given the current tightness in labor markets, the po accelerating inflation is probably greater than the risk of protracted, excessive weakness in In any case, it will need to continue to monitor evolving circumstances closely, and adjust t monetary policy as appropriate, in order to help establish conditions consistent with progress Federal Reserve's goals of price stability and maximum sustainable economic growth.

## Ranges for Money and Credit GrowthIndeed, recognition of the benefits of low inflation and our commitment to the Reserve's statutory objective of price stability were once again dominant in the Committee's s review of the ranges for the monetary and debt aggregates.

The FOMC noted that the behavior monetary aggregates had been somewhat more predictable over the past few years than it had earlier in the 1990s.

The rapid growth of M2 and M3 over the first half of the year, which l measures above the upper ends of the target ranges established in February, was consistent unexpectedly strong advance in aggregate demand.

However, movements in velocity remain diffic predict.The FOMC will continue to interpret the monetary ranges as benchmarks for t achievement of price stability under conditions of historically normal velocity behavior.

Cons that interpretation, the Committee decided to retain the current ranges for the monetary agg 1998, as well as the range for debt, and to carry them over on a provisional basis to next ye near-term prospects for velocity behavior are uncertain, the Committee recognizes that monetar does appear to provide some information about trends in the economy and inflation.

Therefore, be carefully evaluating the aggregates, relative both to forecasts and to their ranges, in other readings on other variables in our efforts to promote optimum macroeconomic conditions.

## Concluding CommentsAs

I have stated in previous testimony, the recent economic performance, wit combination of strong growth and low inflation, is as impressive as any I have witnessed in half-century of daily observation of the American economy.

Although the reasons for this deve are complex, our success can be attributed in part to sound economic policy.

The Congress Administration have successfully balanced the budget and, indeed, achieved a near-term sur development that tends to boost national saving and investment.

The Federal Reserve has p monetary conditions consistent with maximum sustainable long-run growth by seeking price sta These policies have helped bring about a healthy macroeconomic environment for productivity-bo investment and innovation, factors that have lifted living standards for most Americans.

The t us is to maintain disciplined economic policies and thereby contribute to maintaining and exten gains in the years ahead.