Panel Discussion II: Safeguarding Good Policy Practice

economic growth and employment. Good policy practice can be judged by the outcomes achieved. Therefore, I would like to briefly outline the Federal Reserve’s performance with respect to the level and the variability of inflation and growth. To be sure, the strong economic performance over the past two decades has several possible explanations, but the practice of monetary policy has likely contributed by helping to preserve macroeconomic stability. With respect to price stability, inflation in the United States over the past decade or so has clearly been lower and more stable than it was earlier in our history. In fact, annual inflation in the price index of personal consumption expenditures excluding food and energy—core PCE— averaged just over 2 percent from 1990 through the end of 2003 and consistently remained within a range—roughly 1 to 4 percent—that is relatively narrow compared with historical experience. This period contrasts sharply with the 14-year period from 1965 through the end of 1979, when annual core-PCE inflation averaged just over 5 percent and fluctuated between 3 and 10 percent. The recent experience of the United States with inflation has been similar in some respects and dissimilar in others to that of other countries. For example, based on the Organisation for Economic Co-operation and Development’s (OECD’s) measures of overall consumer price inflation, prices rose at an annual average rate of about 3 percent in the United States from 1990 through 2003, compared with about 3 percent in the euro area and in the United Kingdom and roughly 1 percent in Japan.1 But, more important, the volatility of Safeguarding Good Policy Practice