On Tuesday, November 16, 1999, the Federal Reserve Board will decide whether or not to tighten monetary policy at the Federal Open Market Committee meeting. Throughout the year the Fed has been somewhat hesitant to raise rates, which could slow the economy. While raising the Federal Funds and Discount Rates could, in the long run, lead to higher interest rates, many people worry that the potential for an overheated economy is high, and there is little risk from too slow growth. Overheating in the economy, popularly known as the economic bubble, could reverse the current decline in inflation. Therefore, action should be taken to prevent such a thing from happening. The purpose of monetary policy is to stabilize prices and make sure that economy is operating at full potential (stabilize employment and production). Data proves that both have been fulfilled. Price inflation is low at 2% and unemployment is close to 4%. (Bureau of Economic Analysis and Bureau of Labor Statistics) This low rate of unemployment, however, can be a problem for many businesses, because it can make finding qualified labor difficult. So, which move can be considered the most appropriate? I feel that the best act

ion is to tighten monetary policy. The economy is growing at a rate above its potential, as a result of high consumer spending, which is driven by swelling stock prices. Households and businesses are borrowing more and saving less. According to the Bureau of Labor Statistics, there has been a steady decline in the unemployment and underemployment rates. The underemployed includes the unemployed, discouraged workers, and those working part-time that desire to work full-time. This aids in the 4% real GDP growth. While this may seem attractive, it is not desirable in an economy that is overheating, such as ours. With the phenomenon of low unemployment comes high labor costs. Businesses spend large amounts of resources in hiring, labor retention, and in the training and educating of less qualified workers. Consequently, profit margins are falling. Earnings have fallen in the past year, however stock prices continue to increase at record highs. This is evidence that investors have extremely high expectations for the future earnings growth of their investments. Investors will be disappointed if earnings continue to lag. If the economy does not slow down, then businesses will have no choice but to raise the prices of their goods and services, or they will run the risk of seeing their stock price drop. The small unemployment pool suggests that we shoul

Some common words found in the essay are:
Labor Statistics, Discount Rates, Aggregate Supply, Discount Rate, Reserve Board, AW Phillips, Street Journal, Alan Greenspan, Throughout Fed, Bubble Economist, aggregate demand, monetary policy, wall street journal, 1999 a2, money supply, federal reserve, street journal, tighten monetary, federal funds, wall street, tighten monetary policy, bureau labor statistics, bureau labor, federal funds rate, federal market committee,
Approximate Word count = 911
Approximate Pages = 4 (250 words per page double spaced)