Maintaining low inflation rates reduces the levels of future uncertainties and, hence, increases the scope of investment opportunities. It is here that the Federal Reserve can most contribute to long-term growth. Other government policies also can affect these perceptions. For example, lower marginal tax rates and capital gains taxes would increase the return to successful investments and, thus, the incentive to initiate them.
In addition, coming to grips now with the outsized projected growth in entitlement spending in the early years of the next century could have a profound effect on current expectations of stability. Early actions could bring real long-term interest rates down, also increasing the scope of investment opportunities.