The Federal Reserve's interest rate policy and economic growth concerns in 2004

Monetary Policy

Recently, the Federal Reserve Chairman's Allan Greenspan announced that "startling economic report" of expanding growth is not enough to sway the Fed's policy," of raising interest rates. The Fed lowers interest rates when the economy is in danger of recession. Short-term interest rates reached "the rock-bottom level of 1% of earlier this year," but "when the Labor Department reported on Friday that employment surged by 337,000 jobs in October, far faster than most forecasters had expected, market speculators immediately raised their bets that the Federal Reserve would not pause in its course of gradually raising interest rates," as it has done in the past. (Andrews, 2004)

However, although the Fed's desire to raise interest rates and limit consumer spending might be keeping with its desire to stem inflation, it may meet with opposition from marketers who wish the holiday marketing season to show a substantial improvement from last year. The rising price of oil will also make it more difficult to heat stores, and take consumer dollars away from stores. But "Fed officials have left no doubt that they will raise short-term rates," although Greenspan is still keeping his options "open" for "December and next year." Andrews, 2004)