US rethinking economic policy as growth surges

The remarkable US economic performance of recent years is not a fluke, according to Ms Alice Rivlin, the Federal Reserve's vice-chair.

The US central bank's number two said this situation might have lasting implications for economic and monetary policy.

Ms Rivlin said that policymakers were looking again at the relationship between rapid growth, low unemployment, and prices.

Ms Rivlin said there was evidence that low unemployment in recent years had held down inflation by forcing companies to use resources more effectively.

"Economists have had in their head the idea that tight labour markets would lead to inflation and low productivity. We've seen neither," she said.

"It may be that, under the present circumstances of fierce global competition, the effect of tight labour markets is exactly the opposite."

Employers had instead stepped up managerial innovation and invested more in training unskilled workers, she added.

This might have created the unusually benign conditions of strong productivity growth, wage increases and low inflation.

Ms Rivlin's remarks are a clue to the evolving views of Federal policy-makers on whether the central bank should raise interest rates.

The bank has refrained from tightening policy in recent months, despite strong growth, because inflation has remained low.