This disinflation represents an impressive victory for the disciplined monetary policy of the Federal Reserve under the guidance first of Paul Volcker and then Alan Greenspan. But having won the war, we at the Federal Reserve also have to win the peace. We will do that by always remembering that our mandate to foster price stability imposes a symmetric responsibility.
Because resources are misused whenever the economy operates outside the zone of price stability, measured inflation can be too low at times as well as too high. In the quarters ahead and as noted at the conclusion of our policy meeting earlier this month, the Federal Reserve has to guard against further declines from the already low prevailing level of inflation.