United States Federal Reserve Monetary Policy
The United States (US) Federal Reserve is made up of a Board of Governors, appointed to fourteen year terms by the President of the United States and confirmed by the Senate. They may serve only one term. The Federal Reserve controls monetary policy by moving the federal funds rate using open market operations. Open market operations involve using currency to buy and sell financial assets, typically gold, foreign currency or government bonds, thereby affecting the liquidity of the national currency. The federal funds rate, also called the overnight rate, is the rate which banks charge each other. It is about three points lower than the prime rate, which is the rate that banks charge their best customers. Periodically the Chairman of the Federal Reserve, currently Alan Greenspan, is required to report to Congress concerning US monetary policy. In his most recent report to Congress on February 16, 2005, Alan Greenspan, characterized the US economy as steadily improving. Acknowledging that economic activity had increased in 2003, he said that the expansion appeared tentative as 2004 began, due primarily to reluctance by businesses to hire new employees. During the spring of 2004, however, the economy strengthened as busine
In the second half of 2004, the economy continued to expand, although at mid-year there were signs of weakness, brought about as a result of high oil prices. By autumn this small slowdown was over, as consumer spending was up and businesses were again hiring and factory output increased. Business profits were healthy and capital spending increased throughout the remainder of 2004. According to Greenspan, "The fundamental factors underlying the continued strength of the economy last year should carry forward into 2005 and 2006, promoting both healthy expansion of activity and low inflation."2 Lately Alan Greenspan has been signaling his concerns about another potential problem in the economy, the deficit. Neither Congress nor the President seems to be focused on reducing the deficit, as indicated by increases in spending. Greenspan is on record as indicating that the current level of spending cannot be sustained and that the deficit must be reduced. Speaking before the US Senate budget committee on April 21, 2005, Mr. Greenspan warned that, "the United States is on an unsustainable economic course as soaring health care and social security costs outstrip society's ability to pay for
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