On the other hand, the influence of monetary policy on the other objectives is limited and indirect at best. For example, economic growth depends in part on demographics such as labor force growth, and on the quality of the labor force, matters over which Federal Reserve policies have no influence or effect. Equally important, in the long run no fundamental incompatibility exists among these multiple objectives. The principal contribution monetary policy can make to achieve sustainable growth and high employment is to establish an environment of overall price-level stability. Beyond demographic factors, growth depends on the capital stock with which the labor force works.
Capital investment is likely to do well in a non-inflationary environment.
In sum, price stability is compatible with the other objectives specified by Congress and is the principal contribution the Federal Reserve can make toward attainment of those objectives and continuing economic prosperity. Perhaps a more serious concern about dedicating monetary policy so exclusively to achievement of price stability is that, while this objective is embraced in the abstract, many fear that it would impose substantial costs on the economy in practice. Those who hold this view implicitly, if not explicitly, accept the Phillips Curve notion of a trade-off between inflation and unemployment or lost output. If this notion is accepted, there is little doubt that achieving price stability could prove very costly indeed. However, conventional Phillips Curve analysis ignores the potentially crucial role of credibility in achieving policy objectives.