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U.S. Federal Reserve Monetary Policy Essay

1298 words - 5 pages

The Federal Reserve, the central bank of the United States, was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve's duties fall into four general areas: (1) conducting the nation's monetary policy; (2) supervising and regulating banking institutions and protecting the credit rights of consumers; (3) maintaining the stability of the financial system; and (4) providing certain financial services to the U.S. government, the public, financial institutions, and foreign official institutions ( Federal Reserve Monetary Policy over the last ten years.Currently, in 2004 financial markets are going into contortions over the possibility of higher interest rates. The situation today is a lot like that of 1994 and the comparisons between 1994 and 2004 are numerous (Poloz). Over the last ten years the U.S. economic system has seem to come full circle. In 1994 the economy rebounded form a recession in 1991 when a synchronized global expansion emerged. With growth in the Asian countries leading the way, commodity prices climbed, job creation went up in the U.S. and the Federal Reserve rose interest rates (Poloz). The sudden rise in rates caused a brief pause in Global economic growth in 1995, however by 1996 the World economy seemed to be back on track. In 1997 the Asian economic crisis would arrive but had little effect on the U.S. economy (Poloz). Today, the U.S. is in the first synchronized Global expansion since 1994-96. Since May of 2003 the commodity prices have risen significantly, and within the past year those increases are contributing to inflation worries as they work their way through the supply chain. Some key lessons have been learned over the years since 1994. The U.S. is in control of the most powerful economy in the world and when the U.S. makes a monetary policy it affects most of the world, not just the U.S. (Poloz).The State of the EconomyOn April 21, 2004, the chairman of the Federal Reserve Alan Greenspan presented his testimony of the economic outlook to the joint economic committee and the U.S. Senate. Mr. Greenspan begins his testimony by saying "The economy appears to have emerged around the middle of last year from an extended stretch of subpar growth and entered a period of more vigorous expansion. After having risen at an annual rate of 2-1/2 percent in the first half of last year, real GDP increased at an annual pace of more than 6 percent in the second half. Aided by tax cuts, low interest rates, and rising wealth, household spending continued to post sizable gains last year. In addition, an upturn in business investment, which followed several years of lackluster performance, and a sharp rise in exports contributed importantly to the acceleration in real GDP over 2003" (Greenspan 2004). Mr. Greenspan seems pleased with the current state of the economy since the middle of 2003. However, he continues in his...

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