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J. Bradford DeLong what economists say | news articles | analyses | today's headlines |
Webpages useful for teachers of intermediate macroeconomics:
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J. Bradford DeLong what economists say | news articles | analyses | today's headlines |
Webpages useful for teachers of intermediate macroeconomics:
|
U.S. Monetary Policy
2002-02-06
Source: Economist
On January 30 the Federal Open Market Committee--the committee of the Federal Reserve that sets interest rates--decided to leave the short-term nominal federal funds interest rate at 1.75%. Three factors drove the Federal Reserve's decision that recovery was on the way, and thus that further interest rate cuts were not needed:
- First, businesses are likely to spend freely to rebuild inventories in the next six months or so because inventories fell by $45 billion in the last six months of 2001.
- Second, there is an enormous boost to spending from cuts in interest rates over the past year that has not yet had a chance to affect businesses' investment spending. A little more than a year ago the short-term interest rate was 6.5%. Now it is only 1.75% per year.
- Third, the federal budget is about to give a big boost to the economy as well: as the federal budget swings into deficit this year, the total net stimulus to the economy from spending increases and tax cuts has the potential to boost output by 4% from this factor alone.
Previous Handouts
2001-01-28: GDP in 2000 and 2001 (Chapter 13: Stabilization Policy. Chapter 2: Economic Data)
2001-01-21: The Course of the U.S. Recession (Chapter 13: Stabilization Policy)
2001-01-07: Argentina's Crisis (Chapter 15: Exchange Rate Regimes)
2001-12-10: The U.S. Recession (Chapter 2: Principal Macroeconomic Variables)
2001-12-03: The Overvalued Euro (Chapter 3: Exchange Rates; Chapter 15: Exchange Rate Regimes)
2001-11-26: Net Exports, the Exchange Rate, and an IS-Led Boom (Chapter 11: Balance of Payments; Chapter 15: Exchange Rate Regimes)
2001-11-19: The European Central Bank and Its Monetary Policy (Chapter 13: Stabilization Policy)
2001-11-12: Central Banks Worldwide Cut Interest Rates Again (Chapter 13: Stabilization Policy)
2001-11-05: Effects of the Collapse in Spending on Durables (Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-28: What Kind of Stimulus (Chapter 13: Stabilization Policy. Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-21: Federal Reserve Reaction to the Terror Attack on the World Trade Center (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)
2001-10-14: Why a Stimulus Package Might Be Desireable (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)
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