Is Another Great Moderation At Hand

Technology was moving ahead as well, allowing information to travel faster and farther. Just-in-time inventory management, robotics and sophisticated logistics revolutionized manufacturing. The shift to services, which are typically less cyclical, also reduced fluctuations in economic growth.

Traditionally, strong growth and falling unemployment would put pressure on prices. Defying expectations, inflation continued to moderate throughout the 1990s. Productivity growth was central to this outcome; output per hour for U.S. workers grew at an average rate of 2.5% per year for an extended period, a very strong level.

Low and predictable inflation enhanced the clarity of corporate planning and made long-term investment more viable. Borrowing rates, which had carried a burdensome term premium, became more reasonable. Financial innovations further reduced the cost of credit.

Alan Greenspan, the Chairman of the Federal Reserve Board throughout the 1990s, made a very brave decision in the middle of that decade. The U.S. unemployment rate was closing in on 5%, for the first time in 20 years. This prompting fears of overheating and calls for tighter monetary policy. Greenspan resisted, and was vindicated when inflation remained tame even as joblessness fell to 4% at the end of the decade.