February 19, 1998

Federal Reserve Chairman Alan Greenspan and Treasury Secretary Robert Rubin deserve much of the credit for the strong performance of the U.S. economy and its financial markets. Rubin is the architect of what Larry Kudlow calls the "King Dollar" policy, while Greenspan gets credit for refining the domestic price rule which is on the verge of delivering zero inflation. Both policies reinforce each other in their impact on the consumer price level. The benefits of low inflation are numerous. With stable prices, companies can better project their income stream into the future and structure their income in a way that maximizes worker productivity while minimizing corporate taxes. Low inflation also impacts market expectations by lowering investors discount rate. This effectively lengthens their horizons, meaning investors will incorporate profits farther into the future in the valuation of different assets.

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