Monetary Policy
Recently, the Federal Reserve Chairman's Allan Greenspan announced that "startling economic report" of expanding growth is not enough to sway the Fed's policy," of raising interest rates. The Fed lowers interest rates when the economy is in danger of recession. Short-term interest rates reached "the rock-bottom level of 1% of earlier this year," but "when the Labor Department reported on Friday that employment surged by 337,000 jobs in October, far faster than most forecasters had expected, market speculators immediately raised their bets that the Federal Reserve would not pause in its course of gradually raising interest rates," as it has done in the past. (Andrews, 2004)
However, although the Fed's desire to raise interest rates and limit consumer spending might be keeping with its desire to stem inflation, it may meet with opposition from marketers who wish the holiday marketing season to show a substantial improvement from last year. The rising price of oil will also make it more difficult to heat stores, and take consumer dollars away from stores. But "Fed officials have left no doubt that they will raise short-term rates," although Greenspan is still keeping his options "open" for "December and next year." Andrews, 2004)
The Fed has always been most concerned about the economy growing too fast, outpacing real development, than other, more publicly influenced government agencies, which are apt to look upon growth with purely rose colored glasses, as consumers wish to see more jobs and retailers wish to see more immediate short-term sales to generate profits. Also, consumers wish to borrow more money for durable goods. and, despite the recent strong economic numbers regarding job growth, "the economy is still showing signs of fragility." There is a fear that "temporary factors," such as seasonal factors and deep discounts offered by makers of cars and other durable goods, rather than permanent and long-lasting improvements in the American economic infrastructure. (Andrews, 2004)
Works Cited
Andrews, Edmund L. (November 8, 2004) "Fed expected to stay the course for now." The New York Times. Business Section. http://www.nytimes.com/2004/11/08/business/08fed.html?oref=login
Monetary Policy
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