These fundamentally conflicting objectives provoked many currency crises and caused tremendous economic harm and, as a result, heightened people’s desire for monetary stability. Today, the public’s aversion to, and politicians’ awareness of, inflation may have reached a peak in the developed world. This was certainly a necessary condition for the global disinflation process of the 1990s. Historically, the most effective device for keeping the price level down was the gold standard.2 In the US, for example, accumulated inflation between the founding year (1776) and World War II was just 1  The majority of European central banks were established in the 19th century. The rise of central banking accelerated in the 20th century. 2  However, the long-run stability of the price level was accompanied by strong and recurring fluctuations in output and prices. 1  BIS Review 35/2000  30%, whereas since then, the price level has multiplied by factor 8. The figures for Europe look broadly similar when the war-driven hyperinflations are left out of account. This makes central banks’ seemingly unique policy performance in the nineties look slightly more modest. In the past decade, three main factors facilitated a return to purchasing power stability. First, a lesson was learned from the negative experience with inflation. Price stability gained considerably in importance in the political process. Majorities in both governments and parliaments voted in favour of monetary discipline, which in many places amounted to priority being given to budget discipline and pronounced central bank autonomy.
This is as good a time as any to remind everyone that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee or others in the Federal Reserve System. The Economic Outlook If you do an online search about recent economic developments, the word “uncertainty” will come up a lot. And it’s true that uncertainty, both at home and abroad, is playing an important role in my thinking about the economic outlook and monetary policy, as I’ll discuss shortly. But when you take a step back and look at where things stand today relative to our goals, the economy is in a favorable place. The current expansion is the longest on record. The economy continues to grow at a moderate pace, as seen in the latest GDP numbers. And this growth has supported month after month of job gains and a pickup in wage growth in the past couple of years. Furthermore, the overall unemployment rate is near the lowest it has been in 50 years. And the benefits of the strong labor market have been broad across the population: Unemployment rates for African-Americans and Hispanics, while still higher than the overall rate, are near their all-time lows. These low rates aren’t just a fluke of how unemployment is measured in the official statistics—the broadest measure of underemployment, called U-6, is at its lowest level since 2000. These are all very positive signs when it comes to assessing our maximum employment goal.