THE CURRENT STATE OF THE AMERICAN ECONOMY, PRINCIPAL CONCERNS OF THE FEDERAL RESERVE, AND STATED DIRECTION OF RECENT MONETARY POLICY, TOGETHER WITH POLICY ACTIONS
This research examines the current state of the American economy, the principal concerns of the Federal Reserve in the summer of 2004, and the stated direction of recent monetary policy, together with policy action lending support to or refuting the stated policy actions. The sources for this examination include documents obtained from the Federal Reserve, including testimony before the Congress, reports to the Congress, press releases, The Beige Book, and speeches by members of the Board of Governors of the Federal Reserve System.
Current State of the American Economy
The Board of Governors of Federal Reserve (2004b), in the most recent Monetary Policy Report to the Congress, started with the statement that: "The economic expansion in the United States became increasingly well established in the first half of 2004 à" (p. 1), and then proceeded in the remainder of the Report to present evidence that, to some observers, would cast doubt on that rosy outlook. Specifically, the Monetary Policy Report to the Congress stated the following performance outcomes that might be inconsistent with the assessment of an "increasingly well established" (Board of Governors, Federal Reserve System, 2004, p. 1) economic expansion:
Energy prices soared (Board of Governors, Federal Reserve System, 2004, p. 1)
Inflation in core consumer prices in the first quarter of 2004 were more than double the rate in the fourth quarter of 2003 (Board of Governors, Federal Reserve System, 2004, p. 1)
Evidence suggests that the productive capacity of the economy is still not being fully used (Board of Governors, Federal Reserve System, 2004, p. 2)
Persistent weakness continues to characterize the labor market (Board of Governors, Federal Reserve System, 2004, p. 2)
Household debt ros...