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Monetary policy report to the congress

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  • anonymous

Abstract

The subpar performance of the U.S. economy extended into the first half of 2003. Although accommodative macroeconomic policies and continued robust productivity growth helped to sustain aggregate demand, businesses remained cautious about spending and hiring. All told, real gross domestic product continued to rise in the first half of the year but less quickly than the economy's productive capacity was increasing, and margins of slack in labor and product markets thereby widened further. As a result, underlying inflation remained low--and, indeed, seems to have moved down another notch. In financial markets, longer-term interest rates fell, on net, over the first half of the year as the decline in inflation and the subdued performance of the economy led market participants to conclude that short-term interest rates would be lower than previously anticipated. These lower interest rates helped to sustain a rally in equity prices that had begun in mid-March. The Federal Reserve expects economic activity to strengthen later this year and in 2004, in part because of the accommodative stance of monetary policy and the broad-based improvement in financial conditions. In addition, fiscal policy is likely to be stimulative as the provisions of the Jobs and Growth Tax Relief Reconciliation Act of 2003 go into effect and as defense spending continues to ramp up. Severe budgetary pressures are causing state and local governments to cut spending and to increase taxes and fees, but these actions should offset only a portion of the impetus from the federal sector. Moreover, the continued favorable performance of productivity growth should lift household and business incomes and thereby encourage capital spending. Given the ongoing gains in productivity and the existing margin of resource slack, aggregate demand could grow at a solid pace for some time before generating upward pressure on inflation.

Suggested Citation

  • anonymous, 2003. "Monetary policy report to the congress," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 351-378.
  • Handle: RePEc:fip:fedgrb:y:2003:i:aug:p:351-378:n:v.89no.8
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    File URL: http://www.federalreserve.gov/pubs/bulletin/2003/0803lead.pdf
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    References listed on IDEAS

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    1. David B. Gordon & Ross Levine, 1988. "The capital flight "problem."," International Finance Discussion Papers 320, Board of Governors of the Federal Reserve System (U.S.).
    2. Steven B. Kamin & Robert B. Kahn & Ross Levine, 1989. "External debt and developing country growth," International Finance Discussion Papers 352, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Balachandra, P., 2006. "Implications of private sector participation in power generation--a case study from India," Energy Policy, Elsevier, vol. 34(16), pages 2466-2479, November.
    2. Dao, Ngoc Tien & Ngo, Chi Le & Nguyen, Quynh Huong & Nguyen, Thu Hang, 2013. "Participation of non-state actors in formulation of trade policy in Vietnam," Papers 921, World Trade Institute.
    3. Zhang, Yanbing & Hua, Xiuping & Zhao, Liang, 2011. "Monetary policy and housing prices : a case study of Chinese experience in 1999-2010," BOFIT Discussion Papers 17/2011, Bank of Finland, Institute for Economies in Transition.
    4. Zampolli, Fabrizio, 2006. "Optimal monetary policy in a regime-switching economy: The response to abrupt shifts in exchange rate dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1527-1567.
    5. Denholm, Paul, 2006. "Improving the technical, environmental and social performance of wind energy systems using biomass-based energy storage," Renewable Energy, Elsevier, vol. 31(9), pages 1355-1370.
    6. repec:wsi:ijimxx:v:11:y:2007:i:02:n:s1363919607001734 is not listed on IDEAS
    7. 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.
    8. Honkapohja, Seppo & Mitra, Kaushik, 2004. "Are non-fundamental equilibria learnable in models of monetary policy?," Journal of Monetary Economics, Elsevier, pages 1743-1770.
    9. repec:spr:manint:v:48:y:2008:i:5:d:10.1007_s11575-008-0034-8 is not listed on IDEAS
    10. McGough, Bruce & Rudebusch, Glenn D. & Williams, John C., 2005. "Using a long-term interest rate as the monetary policy instrument," Journal of Monetary Economics, Elsevier, vol. 52(5), pages 855-879, July.
    11. Pippenger, John, 2012. "The Fragility of Overshooting," University of California at Santa Barbara, Economics Working Paper Series qt4rd5j98c, Department of Economics, UC Santa Barbara.
    12. repec:wyi:journl:002125 is not listed on IDEAS
    13. Jenny Pickerill, 2007. "‘Autonomy On-line’: Indymedia and Practices of Alter-Globalisation," Working Papers id:815, eSocialSciences.
    14. Tobal Martín & Yslas Renato, 2016. "Two Models of FX Market Interventions: The Cases of Brazil and Mexico," Working Papers 2016-14, Banco de México.
    15. Danijel Nestić, 2005. "Price Level Convergence: Croatia, Transition Countries and the EU," Working Papers 13, The Croatian National Bank, Croatia.
    16. Capraro Rodríguez Santiago & Perrotini Hernández Ignacio, 2012. "Intervenciones cambiarias esterilizadas, teoría y evidencia:el caso de México," Contaduría y Administración, Accounting and Management, vol. 57(2), pages 11-44, abril-jun.
    17. 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.
    18. repec:wsi:jeapmx:v:12:y:2010:i:01:n:s1464333210003504 is not listed on IDEAS

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