The Federal Reserve Bank Today

Paper Summary:

This paper discusses the economy, stating that keeping interest rates steady and controlling the expansion of the money supply over the course of the rest of the 2007 fiscal year seems prudent on the part of the Fed, unless unemployment begins to increase precipitously or economic growth sharply contracts at a steady level over the course of the next few months. This paper further asserts that the Fed should continue to make curtailing inflation the cornerstone of its fiscal policy. It should maintain high reserve requirement, sell government securities at the same rate to avoid a sharp influx of currency into the marketplace by lending banks, and keep the discount rate at current levels. Furthermore, it says that although this moderation may not yield exuberance on Wall Street, it also will not sharply contain growth and propel the economy into recession, either.

Outline:
Behavior of key 2007 macroeconomic variables--Review of Federal Reserve policy
Assess the Federal Reserve policy over the year--Recommendations & Predictions

From the Paper:

"However, it should be reminded that not only did economic growth slow sharply in the first quarter of this year to an annual pace of 1.3% but that this was the slowest growth the economy has shown in the past four years (Andrews, 2007). This slow economic growth demonstrates that the Fed's refusal to reduce rates, even in the wake of an increase in unemployment, however incremental was not an easy or clearly indicated decision. Also, there was no statement was released as to why 2% a year as decided upon as an official target. However, according to William Poole, the President of the Federal Reserve Bank of St. Louis, ideally, the Fed views the optimal rate of inflation as zero, only allowing for small 'biases in price indexes' (Poole, 2005)."

Sample of Sources Used:

• Andrews, Edmund. "Federal Reserve: Cites inflation in keeping interest rates steady." 9 May 2007. Herald Tribune. 11 Jun 2007. http://www.iht.com/articles/2007/05/09/business/fed.php
• La Monica, Paul. "Fed leaves rates alone again." 9 May 2007. CNN.com: Money. 11 Jun 2007. <http://money.cnn.com/2007/05/09/news/economy/fed_rates/index.htm>
• Poole, William. "Inflation, Financial Stability and Economic Growth." 3 May 2005. The Federal Reserve Bank of St. Louis. 11 Jun 2007. <http://stlouisfed.org/news/speeches/2007/03_05_07.html>
• Weston, Liz. "The truth about credit card debt." MSN Money. 11 Jun 2007. http://moneycentral.msn.com/content/Banking/creditcardsmarts/P74808.asp
• "What are the tools of monetary policy?" The Federal Reserve Bank of San Francisco. 2007. 11 Jun 2007.<http://www.frbsf.org/publications/federalreserve/monetary/tools.html>

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