So before I raise expectations too much, let me say that I do not have answers for all these questions. There are, however, several important steps we can take that would increase our chances of preserving the current economic expansion and help improve our performance over the long run. Let me start at the beginning with sound economic policies. I see low and stable inflation as an essential building block of a strong economic structure. Perhaps, but there are good reasons for it.
Inflation carries with it costs that are more profound and widespread than is commonly recognized.
Inflation distorts and confuses the information and incentives that consumers, entrepreneurs, savers, and investors rely on to make their economic decisions. We saw a lot of this during the high-inflation days of the 1970s and 1980s. We also saw our interest rates rise higher and higher to compensate savers for expected higher inflation and for the risks caused by uncertainty about future inflation. And we saw economic booms turn into busts. So the focus of central banks on price stability these days is neither accidental nor whimsical.