Monetary policy report to the Congress, July 22, 1999 (semi-annual Humphrey-Hawkins report)

The U.S. economy has continued to perform well in 1999. The ongoing economic expansion has moved into a near-record ninth year, with real output expanding vigorously, the unemployment rate hovering around lows last seen in 1970, and the underlying trends in inflation remaining subdued. Productivity-enhancing investments by businesses, spurred by the availability of new technologies at increasingly attractive prices, have held down the rise in costs and prices and have boosted living standards. Two of the major threats faced by the economy in late 1998--economic downturns in many foreign nations and turmoil in financial markets around the world--receded over the first half of this year. The Federal Open Market Committee was concerned that as economic activity abroad strengthened, the firming of commodity and other prices might foster a less favorable inflation environment. To gain some greater assurance that the good inflation performance of the economy would continue, the Committee decided at its June meeting to reverse a portion of the easing undertaken last fall, when global financial markets were disrupted, by raising its target for the overnight federal funds rate from 4 percent to 5 percent.