U.S. FEDERAL RESERVE MONETARY POLICY

U.S. FEDERAL RESERVE MONETARY POLICY

Characterization of the State of the Economy

The Board of Governors of Federal Reserve (2004), in the most recent Monetary Policy Report to the Congress, stated that economic expansion in the American economy strengthened in the first-half of 2004. The Report to the Congress also stated that it was likely that the American economy would continue to grow throughout the remainder of 2004 and into 2005.

The Board of Governors (2004) also noted, however, that job growth in the American economy continued to be sluggish, and that job growth might not strengthen substantially in the remainder of 2004. The Report to the Congress did not indicate that the Federal Reserve was especially concerned about sluggish job growth in the American economy at this time (approximately mid-year 2004).

The Board of Governors (2004) also noted that rising energy prices could prove to be a drag on the performance of the American economy. Continued increases in energy prices could curtail growth in discretionary consumer spending and further retard job growth. The Board of Governors (2004) was more upbeat about economic performance in the July 2004 Report to the Congress than it had been in the February 2004 Report to the Congress.

In his testimony before a Congressional Committee in July 2004, Alan Greenspan, Federal Reserve Board Chairman (2004) indicated that the primary concern of the Federal Reserve Board was the potential for a return of inflation pressures that could prove to be detrimental to the American economy. Mr. Greenspan’s (2004) did not indicate that the Federal Reserve Board was especially concerned about the potential for an economic recession. An illustration of the focus of the Federal Reserve Board on inflation was Mr. Greenspan’s (2004) statement to the Congressional committee that the Federal Reserve Board would act quickly and decisively if job growth increased and,



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