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BOSTON – Jerome H. Powell, the Federal Reserve chairman, said Tuesday that the current combination of low inflation and low unemployment is "not too good to be true," and that the "pleasant pairing" could continue for some time.
The American economy is experiencing what Mr. Powell recently called a "particularly bright moment." Inflation is hovering around the 2 percent annual pace of the Fed's inflation rate, which was just 3.9 percent in August. Fed officials have predicted that both inflation and unemployment will remain around the same level for the next several years.
There is no historical precedent for such an extended period of low inflation and low unemployment. But Mr. Powell said there was reason to believe that this time could be different.
He said the Fed's success in holding down inflation in recent decades has strengthened its public expectation that it would remain low, and that, in turn, is helping to hold down prices.
"These developments amount to a better world for the sake of business and businesses, which no longer has a strong impact on the inflation rate," Mr. Powell said this anchoring of expectations, according to the draft text of the report. afternoon in Boston at the annual meeting of the National Association for Business Economics.
Mr. Powell described the Fed's market as higher rates as rooted in risk management. The Fed is raising rates because it is more likely that inflation will increase. Yet the Fed is also moving slowly because it raises some risks that would increase economic growth.
"Our ongoing policy of gradual interest rates increases the rate of growth, while maintaining maximum employment and low inflation," he said.
The volatility of inflation has greatly diminished in recent decades. During the middle of the last century, inflation rose during periods of low unemployment and fell during periods of high unemployment. Over the last few decades, inflation has held steady steady through the ups and downs of the broader economy.
Some economists see that pattern as a weakened relationship between inflation and unemployment. Mr. Powell argues that the link is still exists, but there is greater confidence in the Fed's ability to control inflation. As a result, the reaction to changes in economic conditions has been muted.
"The key is the anchored expectations," he said.
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