Monetary Policy-The State of the Economy

Paper Summary:

This paper discusses the recent testimony of Alan Greenspan, Chairman of the Federal Reserve, and the annual report to Congress by the Federal Reserve. This paper examines the current state of the economy as well as the Federal Reserve handling of monetary and fiscal policy relative to the economy. Of particular importance is the Federal Reserves strategic shift in policy from accommodative to appropriate.

From the Paper:

"The Federal Reserve, as represented by Alan Greenspan, in recent testimony before Congress believes the state of the economy is, overall, very positive. Mr. Greenspan, among other factors, listed employment numbers, retail spending and business investment as reasons to believe the economy is trending stronger (Testimony, 2005, para.5). Mr. Greenspan also alluded to the character of the US housing market as a leading generator of the nation's wealth at the moment but cautioned the current "froth" in the residential home market is a potential threat to the economy (Testimony, 2005, para.42). In sum the Federal Reserve is very upbeat about the state of the economy but has considerable reservations concerning the threat of inflation led by rising oil and gas prices: A flattening out of the prices of crude oil and natural gas...would also lessen upward pressures on inflation."

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