Price stability and financial stability: the historical record

Abstract

Although the economic performance of the U.S. economy in 1997 was very good, it was troubling in at least one respect for the Federal Open Market Committee. Traditional signals of inflation - rapid money growth and high levels of economic activity - were not accompanied by higher inflation. Rather, inflation fell steadily throughout the year. The committee put forth several hypotheses for the subdued inflation but found the situation puzzling, nevertheless. Compounding the problem, members did not know how long such dampening factors might last. In the end the FOMC changed the intended federal funds target once and searched anxiously for the answers to the conundrum it faced in 1997.Economic policy