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Monetary policy report to the Congress

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    Abstract

    The U.S. economy continued to expand at a solid pace over the first half of 2005 despite the restraint imposed on aggregate demand by a further rise in crude oil prices. Household spending trended up, propelled by rising wealth and income and by low interest rates, and business outlays received ongoing support from favorable financial conditions, rising sales, and increased profitability. Moreover, the earlier declines in the foreign exchange value of the dollar shifted some domestic and foreign demand toward U.S. producers. Overall, the economic expansion was sufficient to create jobs at roughly the same pace as in late 2004 and to lower the unemployment rate further over the first half of this year. ; Higher oil prices boosted retail prices of a broad range of consumer energy products and, as a result, continued to hold up the rate of overall consumer price inflation in the first half of 2005. With financial conditions advantageous for households and firms, a solid economic expansion in train, and some upward pressure on inflation, the Federal Open Market Committee (FOMC) continued to remove policy accommodation at a measured pace over the first half of the year, raising the intended federal funds rate an additional 1 percentage point, to 3-1/4 percent, by the end of June. At the June FOMC meeting, the Committee judged that policy remained accommodative. With appropriate monetary policy, however, the upside and downside risks to output and inflation were viewed as balanced, and the Committee underscored its commitment to respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability. ; The fundamental factors that supported the U.S. economy in the first half of 2005 should continue to do so over the remainder of 2005 and in 2006. Despite the upward pressure on costs and prices over the past year or so, core consumer price inflation is likely to remain contained and longer-run inflation expectations are still well anchored. Of course, substantial uncertainties surround this economic outlook. A further sharp rise in crude oil prices would have undesirable consequences for both economic activity and inflation, and the possibility that housing prices, at least in some locales, have moved above levels that can be supported by fundamentals remains a concern.

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    File URL: http://www.federalreserve.gov/pubs/bulletin/2005/summer05_mpr.pdf
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    Bibliographic Info

    Article provided by Board of Governors of the Federal Reserve System (U.S.) in its journal Federal Reserve Bulletin.

    Volume (Year): (2005)
    Issue (Month): Sum ()
    Pages: 319-343

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    Handle: RePEc:fip:fedgrb:y:2005:i:sum:p:319-343:n:v.91no.3

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    Keywords: Monetary policy - United States ; Economic conditions - United States;

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    Cited by:
    1. Pietro Catte & Pietro Cova & Patrizio Pagano & Ignazio Visco, 2010. "The role of macroeconomic policies in the global crisis," Questioni di Economia e Finanza (Occasional Papers) 69, Bank of Italy, Economic Research and International Relations Area.
    2. Ravn, Søren Hove, 2014. "Asymmetric monetary policy towards the stock market: A DSGE approach," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 24-41.
    3. Pippenger, John, 2009. "Dornbusch Was Wrong: There is no Convincing Evidence of Overshooting, Delayed or Otherwise," University of California at Santa Barbara, Economics Working Paper Series qt78k0b5zw, Department of Economics, UC Santa Barbara.
    4. Kaushik Mitra & Seppo Honkapohja, 2004. "Performance of Inflation Targeting Based On Constant Interest Rate Projections," Royal Holloway, University of London: Discussion Papers in Economics 04/15, Department of Economics, Royal Holloway University of London, revised Jul 2004.
    5. Ather Maqsood Ahmed & Wasim Shahid Malik, 2011. "The Economics of Inflation, Issues in the Design of Monetary Policy Rule, and Monetary Policy Reaction Function in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 213-232, September.
    6. Pippenger, John, 2012. "The Fragility of Overshooting," University of California at Santa Barbara, Economics Working Paper Series qt4rd5j98c, Department of Economics, UC Santa Barbara.
    7. Rodriguez, Adolfo & Trucharte, Carlos, 2007. "Loss coverage and stress testing mortgage portfolios: A non-parametric approach," Journal of Financial Stability, Elsevier, vol. 3(4), pages 342-367, December.
    8. Pippenger, John, 2008. "Freely Floating Exchange Rates Do Not Systematically Overshoot," University of California at Santa Barbara, Economics Working Paper Series qt97m8z6hw, Department of Economics, UC Santa Barbara.
    9. Bertaut, Carol & DeMarco, Laurie Pounder & Kamin, Steven & Tryon, Ralph, 2012. "ABS inflows to the United States and the global financial crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 219-234.

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