Greenspan has been more fortunate. Shortly before he was appointed Fed chairman in 1987, world oil prices plummeted, improving the inflation-unemployment tradeoff. Over the past two years, the foreign-exchange market has provided a similar benefit. The rise in the exchange rate from 90 to 120 yen per dollar has put downward pressure on the prices of imports and import-competing goods. And because wages respond to consumer prices, the strong dollar has also kept down growth in labor costs.
Monetary policy is only one determinant of the unemployment rate.
More important, especially in the long run, is how well the labor market matches workers and jobs. In many European countries, unemployment remains high because welfare policies give unskilled workers little incentive to find jobs. The U.S. is less generous, and one result is a more favorable tradeoff between inflation and unemployment. The declining unemployment rate over the past several years has led some economists to wonder whether the U.S. labor market is getting better at matching workers and jobs. The increasing role of temporary-help agencies is one possible explanation.