Us Federal Reserve Monetary Policy

U.S. Federal Reserve Monetary Policy

The purpose of this assignment is to prepare a paper U.S. Federal Reserve monetary policy that characterizes the state of the economy. This paper will describe the primary concern in which the Federal Reserve currently has in regard to the economy. In addition, this paper will provide the stated direction of recent policy as it affects the economy. Finally, an explanation of the current actions by the Federal Reserve that confirms the

stated direction.

The state of the economy as presented by Alan Greenspan before the committee on the Budget, U.S. House of Representatives on September 8, 2004 is moving as previously predicted http://www.federalreserve.gov/boarddocs/testimony/2004/200409082/htm. Although the economic started to slip in mid-year from the healthy growth of late 2003 and early 2004, it didn't stray too for from the forecast. The primary reason for this was due largely to the huge increase in energy prices. Despite the increase in fuel, inflation expectations have dissipated somewhat in recent months. In the labor area, he reported that unit labor cost rose in the second quarter as productivity growth slowed, however compensation per hour continued on an upward trend. According the Mr. Greenspan, manufacturing has continued to move up even though part of that rise is likely reflected an increase in inventory investment. Consumer spending and housing starts has improved over the figures posted in June 2004, but early reading in retail sales in August are mixed. Business investment continued an upward trend; therefore as a whole, the expansion has regained some traction over previous 2004 reports.

High inflation and possibility of a recession is always a concern, however rising fuel prices is the biggest concern for the Federal Reserve. Although evaluating the impact of fuel prices has long been a dispute among economists. Most models treat increase oil prices as a tax that takes away purchasing power that would normally be spent to boost retails sales. The long-term security of oil production in the Middle East and the reliability of supply from other oil-producing regions has led a call to hold the inventory or production at the current level. This has caused the price of crude oil to sharply increase throughout the world. The U.S. say a decrease in gasoline consumption of about 200,000 barrels a day between April and July, which in the past would trigger a downward price per barrel change. Unfortunately, with the growing economies of China and India is forcing the price to remain higher than expected. The added increase in demand has prompted several oil companies to re-examine older oil fields in hope with new technology will produce several billions barrels of oil from fields thought to be non-profitable (http://www.federalreserve.gov/boarddocs/testimony/2004/200409082/htm).

Since the expiration of the Budget Enforcement