Monetary policy report to Congress, February 23, 1999 (semi-annual Humphrey-Hawkins report)

The U.S. economy performed impressively again in 1998. Output expanded rapidly, the unemployment rate fell to the lowest level since 1970, and inflation remained subdued. Monetary policy during the year balanced two major risks to the expansion. On the one hand, with the domestic economy displaying considerable momentum and labor markets tight, there was concern about the possible emergence of imbalances that would lead to higher inflation and would eventually put the sustainability of the expansion at risk. On the other hand, troubles in many foreign economies and the resulting financial turmoil at home and abroad seemed at times to raise the risk of an excessive weakening of aggregate demand. The members of the Board of Governors and the Federal Reserve Bank presidents expect the economy to expand moderately, on average, in 1999. With labor market tightness expected to persist and oil and import prices unlikely to be as weak as they were in 1998, inflation is expected to move up somewhat but to remain low by the standards of the past three decades.