Federal Reserve Chairman Jerome Powell sees the U.S. economy generating highly optimistic expectations, with the unusual combination of low unemployment and inflation fueling hopes for an extended expansion.
In a speech Tuesday, the central bank chief said the jobless rate is running at 3.9 percent and inflation is around the Fed's goal of 2 percent. Historically, low unemployment has fueled inflation and sometimes has forced the Fed into hiking interest rates rapidly.
"While these two top-line statistics do not always present an accurate picture of overall economic conditions, a wide range of data on jobs and prices supports a positive view," Powell told economists at a Boston conference. "In addition, many forecasters are predicting that these favorable conditions are likely to continue."
He pointed out that after last week's Federal Open Market Committee meeting, a reporter asked him if the current conditions are "too good to be true," which he called "a reasonable question."
"From the standpoint of our dual mandate, this is a remarkably positive outlook," he said, referencing forecasts from Fed officials, the Survey of Professional Forecasters and the Congressional Budget Office.
"Since 1950, the U.S. economy has experienced periods of low, stable inflation and periods of very low unemployment, but never both for such an extended time as is seen in these forecasts," Powell added.
He attributed the balance to aggressive Fed action to control and respond to inflation expectations. If a belief grows that inflation is building, businesses sometimes will raise prices and increase wages to head it off. Similarly, a belief that inflation will remain too low also can depress activity.
Through forward guidance, the Fed has sought to manage those expectations and convince the public that it will keep inflation around the central bank's 2 percent goal, Powell said.
In addition to the low unemployment and inflation, GDP grew at a 4.2 percent pace in the second quarter and could top 4 percent again in the fourth quarter. Consumer and business surveys also are running high, and corporate profits have been growing around 25 percent this year.