Monetary Policy
...pan addresses the current state of the economy, issues concerning inflation and the possibilities of recession, and the direction of the recent monetary policy. Greenspan reports that the United States have generally been quite favorable in 2004, lending increasing support to the view that the expansion is self-sustaining. The expansion has become more broad-based and has increased employment. The strengthening in demand has been a factor contributing to the rise in inflation this year. Inflation also seems to have been boosted by transitory factors such as the surge in energy prices. Greenspan had also mentioned the strength in capital spending carried over into the first half of 2004. Capital goods have been on the rise, and backlogs of unfilled orders for new equipment continue to develop. The labor market seems to be improving with most gains being in private nonfarm payroll employment. The improvements in the labor market have increased household spending and expanding employment should provide an increase to personal disposable income. The low interest rates have also helped to lower some of the expenses in household spending. Even though mortgage rates have increased a little they are still much lower and attractive to current and foreseeing homeowners. To answer the question is the Federal Reserve more concerned about high inflation or the possibility of recession, the answer would have to be High inflation. When demand contracts and there's a recession, the Fed can stimulate the economy--temporarily--and help push it back toward its long-run level of output by lowering interest rates. The Federal Reserve is much more concerned with the recent Movements in energy prices which have been a major influence on overall inflatio...