It will, doubtless, be several years before we know with any conviction the full story of the surprisingly benign combination of output and prices that has marked the business expansion of the last six years. Certainly, public policy has played an important role. Administration and Congressional actions to curtail budget deficits have enabled long-term interest rates to move lower, encouraging private efficiency-enhancing capital investment.
Deregulation in a number of industries has fostered competition and held down prices. Finally, the pre-emptive actions of the Federal Reserve in 1994 contained a potentially destabilizing surge in demand, short-circuiting a boom-bust business cycle in the making and keeping inflation low to encourage business innovation. But the fuller explanation of the recent extraordinary performance may well lie deeper.