The Fed, Too, Has Limited Visibility

By John S. McClenahen Like many manufacturing executives, the Federal Open Market Committee (FOMC), the monetary policy-making group at the U.S. Federal Reserve, is having difficulty seeing what lies ahead economically. And so, following its March 18 meeting in Washington, D.C., chairman Alan Greenspan and his FOMC colleagues said they "could not usefully characterize the current balance of risks" between sustainable growth in the U.S. economy and inflation. They left the influential federal funds rate, the interest banks charge one another on overnight loans, at 1.25%, a four-decade low. The primary cause of their hesitation: "the unusually large uncertainties clouding the geopolitical situation in the short run and their apparent effects on economic decision making." In other words, the FOMC, too, isn't sure of the impact of a war with Iraq and the recent rapid rises in oil prices. However, the committee did hold out some economic hope. "The committee believes that as those uncertainties lift, as most analysts expect, the accommodative stance of monetary policy, coupled with ongoing growth in productivity, will provide support to economic activity sufficient to engender an improving economic climate over time." The FOMC is not slated to meet again until May 6.

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