Thus, while the risks of inflation appear to be on the upside, the evidence is not all in one direction. I believe people better realize today that low levels of inflation and inflation expectations contribute to our healthy economic performance. In the United States, these two factors have helped create a financial and economic environment conducive to strong capital spending and longer range planning generally, and therefore to sustained economic expansion. I believe that by pursuing price stability, the Federal Reserve contributes to maximum sustainable output and employment and to moderate long-term interest rates. Simply put, price stability contributes to long-run economic performance.
People sometimes wonder whether a little inflation is really all bad.
Asking this question presupposes a tradeoff between inflation and growth. But our experience from the 1970s taught us that over any reasonable period we cannot achieve a little more growth by accepting a little more inflation. Most of us here lived through the 1970s and early 1980s. By remembering when inflation reached 13 percent, we know why it's important not to repeat the mistakes of the past. Moreover, since 1991, core inflation has averaged a moderate 3.2 percent while real GDP has grown 2.6 percent on average.