THE RECENT PERFORMANCE of the U.S. economy has been nothing short of extraordinary. In 1998 inflation and unemployment reached their lowest levels since 1965 and 1969, respectively. Although estimates of the NAIRU (the nonaccelerating-inflation rate of unemployment, or the rate consistent with stable inflation) are imprecise, the actual unemployment rate has been below 5 percent—the lower bound of Staiger, Stock, and Watson’s 95 percent confidence interval for the NAIRU—for more than twenty consecutive months. Moreover, the rate of price inflation declined in 1997 and 1998.
