Indeed, U.S. economic confidence is newly returned. A decade ago we thought we were being beaten out by the Japanese and emerging Asia and perhaps by Europe as well. We were discouraged by the struggles of our uncompetitive industrial behemoths and disheartened by our endless budget deficits. We were concerned about our capacity to lead or even to keep up in the growing leadership pack. But now some combination of good luck and good policy has brought us an eight year run of strong growth, declining unemployment, and falling inflation and made the American economy a vital positive force in a turbulent world.
Good policy helps.
This increase in national saving lowers interest rates, raises confidence, and encourages investment. At the Fed, we like to think that vigilant monetary policy has kept the economy from overheating, lowered inflationary expectations, and prolonged the current growth period. Strong productivity performance has been aided by the rapid evolution and increasing utilization of computer and telecommunications technology, by the painful downsizing and restructuring undertaken by American industry under the impact of global competition, and by the new skills and dedication to continuous improvement of American business managers. Productivity growth has allowed wages to rise with minimal upward pressure on prices. The strong dollar, low world-wide commodity prices, restraint on medical costs, flexible labor markets and competitive product markets have combined to keep inflation low even in the face of considerable scarcity of skilled workers.