It gives me great pleasure to welcome Federal Reserve Chairman, Alan Greenspan, to testify before the Joint Economic Committee about the Economic Outlook and Monetary Policy.

      In the past several years the US economy has experienced continued, though moderate, expansion with the notable feature of stable and lower inflation. Another conspicuous characteristic of the expansion has been its longevity; it has persisted for more than 60% longer than the average postwar expansion. This has occurred despite both tax increases in 1990 and 1993, as well as increased regulatory burdens.

      I believe the fact that the recovery has been sustained while inflation has abated is neither a coincidence nor an accident. One of the key benefits of lower inflation has been that it has fostered a sustained recovery.

      Specifically, credible disinflation works to lower interest rates, stabilize financial markets and interest sensitive sectors of the economy, promote efficient workings of the price system, and in many ways, works like a tax cut. All of these effects contribute to promoting the sustainability of the expansion.

      But the manner in which disinflation is managed also is important in sustaining the expansion. With a focus on price stability, the Federal Reserve has adopted a "gradualist" approach to squeezing inflation out of the system. By not attempting to achieve price stability too quickly so as to jolt or shock the economy into a slowdown, monetary policy has sustained the expansion. In short, monetary policy has contributed significantly to sustaining the expansion by pursuing price stability in a gradualist manner. Certainly, it appears that the Federal Reserve has done a competent job, at least to date.

      Because of the importance of price stability, I, along with some of my colleagues, have sponsored and plan to reintroduce a bill allowing the Federal Reserve to focus on price stability as its primary policy goal. This would allow the Federal Reserve to continue to pursue price stability with its many benefits without conflicting objectives. With inflation low, now is an opportune time to lock-in our many gains and institutionalize this key policy objective. Several other countries have successfully adopted this strategy and, in fact, the approach has been endorsed by several key officials of the Federal Reserve System.

      Of course, there are many well-known problems attempting to accurately measure price stability and we look forward to your insights on this question as well as to your comments on monetary policy in general.

            Again, we welcome you and look forward to your testimony.

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