Transcript The Federal Reserve Board and Monetary Policy A Case Study June 29, 2006 Stephen Buckles Vanderbilt University Copyright © Council for Economic Education.

The Federal Reserve Board and
Monetary Policy
A Case Study
June 29, 2006
Stephen Buckles
Vanderbilt University
Copyright © Council for Economic Education. Reproduction for
Educational Use is Granted
Figure 1. The Target for the Federal Funds Rate
9.00%
8.00%
Target Federal Funds Rate
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
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Educational Use is Granted
Figure 2. The Target Federal Funds Rate and the Discount
Rate
9.00%
Target Federal Funds Rate
8.00%
Discount Rate
Target Federal Funds Rate
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
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Educational Use is Granted
The action
The Federal Open Market Committee decided today to raise its
target for the federal funds rate by 25 basis points to 5-1/4 percent.
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The action
The Federal Open Market Committee decided today to raise its
target for the federal funds rate by 25 basis points to 5-1/4 percent.
This increase of ¼ of
one percent is
identical to the
increase at the
previous 16 meetings.
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The reasons
Recent indicators suggest that economic growth is moderating from
its quite strong pace earlier this year, partly reflecting a gradual
cooling of the housing market and the lagged effects of increases in
interest rates and energy prices.
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The reasons
Recent indicators suggest that economic growth is moderating from
its quite strong pace earlier this year, partly reflecting a gradual
cooling of the housing market and the lagged effects of increases in
interest rates and energy prices.
A recognition the
recent policy actions
are beginning to work.
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The reasons
Readings on core inflation have been elevated in recent months.
Ongoing productivity gains have held down the rise in unit labor
costs, and inflation expectations remain contained. However, the
high levels of resource utilization and of the prices of energy and
other commodities have the potential to sustain inflation pressures.
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The reasons
Readings on core inflation have been elevated in recent months.
Ongoing productivity gains have held down the rise in unit labor
costs, and inflation expectations remain contained. However, the
high levels of resource utilization and of the prices of energy and
other commodities have the potential to sustain inflation pressures.
A recognition that
inflationary pressures
exist and are of
concern to the
committee.
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The future
Although the moderation in the growth of aggregate demand should
help to limit inflation pressures over time, the Committee judges that
some inflation risks remain. The extent and timing of any additional
firming that may be needed to address these risks will depend on
the evolution of the outlook for both inflation and economic growth,
as implied by incoming information. In any event, the Committee will
respond to changes in economic prospects as needed to support
the attainment of its objectives.
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The future
Although the moderation in the growth of aggregate demand should
help to limit inflation pressures over time, the Committee judges that
some inflation risks remain. The extent and timing of any additional
firming that may be needed to address these risks will depend on
the evolution of the outlook for both inflation and economic growth,
as implied by incoming information. In any event, the Committee will
respond to changes in economic prospects as needed to support
the attainment of its objectives.
The current and past
policy actions should
continue to work. It may
be that further action is not
necessary. However, new
data will influence that
decision.
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The vote
Voting for the FOMC monetary policy action were: Ben S. Bernanke,
Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack
Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker;
Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen.
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The vote
Voting for the FOMC monetary policy action were: Ben S. Bernanke,
Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack
Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker;
Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen.
This report of the
voting shows a
unanimous vote in
favor of the increase in
the target federal
funds rate.
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A change in the discount rate
In a related action, the Board of Governors unanimously approved a
25-basis-point increase in the discount rate to 6-1/4 percent. In
taking this action, the Board approved the requests submitted by the
Boards of Directors of the Federal Reserve Banks of Boston, New
York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St.
Louis, Minneapolis, and Dallas.
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A change in the discount rate
In a related action, the Board of Governors unanimously approved a
25-basis-point increase in the discount rate to 6-1/4 percent. In
taking this action, the Board approved the requests submitted by the
Boards of Directors of the Federal Reserve Banks of Boston, New
York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St.
Louis, Minneapolis, and Dallas.
This increase of ¼ of
one percent is
identical to the
increase at the
previous 16 meetings.
Copyright © Council for Economic Education. Reproduction for
Educational Use is Granted