The means by which Alan Greenspan and the Federal Reserve have chose to slow the economy is through a monetary policy, or more specifically, an increase in the national interest rate. The article states that the Fed officials have come to a "broad agreement that they will keep raising the rates until growth slows to a more sustainable pace to make sure inflation stays under control." Because of the booming economy and the investment in the stock market t

At the time this article was written the stock market prices had fallen sharply especially in the technology sector. But the Fed continued on the path to raise interest rates further noting that the index that they closely follow and contains a broader rage of public traded US stocks, the Wilshire 5000, is up for the year. Even though they began raising rates gradually 9 months ago, it takes almost a year for the economy to feel the full effects. In this case the results of the interest rates increased could be felt as last as the second half of 2000.

Conversely the bond market yields were shown as increasing to a 12 month high. This is accounted by the yield rate being correlated to the rate of inflation in the economy. As the rate of inflation increases, so will the bond yield rate to compensate for inflation. In this case it makes the bond market much more attractive to investors considering the long-term yields may be higher than other forms of investment. It is also a benefit for the Federal Reserve in the sense that as investors choose to buy bonds, it will remove some of the money supply from the economy.

One economist, James Glassman of Chase Securities takes a different look at the new interest rate. He points out that the rates that the Fed has set are fairly high in comparison to the rate of inflation as it is currently in the United States. The formula that Glassman follows examines the inflation rate when food and energy items are excluded because they are so volatile. With these items removed the rate of inflation in the US is less than 2%. As with other measurements, this rate can be subtracted from the interest rates to find a 'real' interest rate which consumers a paying. So in terms of 30-year home mortgage rate set at 8.5%, only 6.5% of it is what the consumers are actually paying and the rest is accounted for by inflation. Glassman goes further to point out that "with inflation so low, wages aren't going up all that fast." To be said more specifically, the interest rates are increasing faster than consumers' wage increases. This will eventually be felt in the tightening of the American economy.

he exchange of money has increased for goods and services, which in turn increases the price level or the quantity of money demanded. By increasing the interest rates the Fed commits itself to adjusting the supply of money in the United States to meet that rate at a point of equilibrium. If the interest rate is increased, less goods and services are demanded, and therefore will slow down the economy and reduce the rate of inflation. The

Some common words found in the essay are:
Federal Reserve, Chase Securities, Price Index, Dow Jones, Labor Statistics, April CPI, rate inflation, federal reserve, Alan Greenspan, Slowing Economy, Secrets CPI, Washington Post, stock market, inflation rate, slow economy, raising rates, alan greenspan, fed officials, price index, home mortgage, bureau labor statistics, consumer price index,
Approximate Word count = 1755
Approximate Pages = 7 (250 words per page double spaced)