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    U.S Monetary Policy in 1995 Essay

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    U. S Monetary Policy in 1995When Alan Greenspan presented the Federal Reserve’s semi-annual reporton monetary policy to the Subcommittee on Domestic and International MonetaryPolicy, the Committee on Banking and Financial Services, and the U. S.

    House ofRepresentatives on February, Dr. Greenspan touted a cautionary yet favorableview of the U. S. economy. He states that “With inflationary pressuresapparently receding, the previous degree of restraint in monetary policy was nolonger deemed necessary, and the FOMC consequently implemented a small reductionin reserve market pressures last July.

    ” (Greenspan, 1996, Speech)During the Summer and Fall of 1995, the economy experienced astrengthening of aggregate demand growth. According to Greenspan, this increasein aggregate demand brought finished goods inventories and sales into nearequilibrium. The Fed’s fine tuning of the economy seemed to be paying off. Greenspan had a positive outlook for the economy for the rest of 1995. Hestates “the economy, as hoped has moved onto a trajectory that could bemaintained–one less steep than in 1994, when the rate of growth was clearlyunsustainable, but one that nevertheless would imply continued significantgrowth and incomes.

    ” (Greenspan, 1996, Speech)Towards the end of the year, the economy showed signs of slowing. Fearing a prolonged slowdown or even a recession in the economy, and withinflationary expectations waning, Chairman Greenspan and the Federal Reserve cutrates again in December. (Greenspan, 1996, Speech)There are, of course, critics of 1995’s monetary policy. Most of thecriticism came in the early part of 1995 when the Fed raised rates again. In the article “Are We Losing Altitude Too Fast” from the May 1, 1995issue of Time magazine written by John Greenwald, he explains that the economymight not be coming in for a “soft landing” like the fed predicts.

    Trying tosustain 2 to 3 percent growth might lead us into a recession. Mr. Greenwaldexplains how the Fed’s actions in 1994 and early 1995 has hurt individuals andthe economy as a whole. “Corporate layoffs are far from over,” says Greenwald,”they generally accelerate when firms find themselves in an economy that isweakening. ” (Greenwald, Time, 5/1/95, p80)Unemployment and layoffs aren’t the only thing to worry about accordingto Mr. Greenwald.

    The automobile industry and the housing markets are bothgetting hit in the pocket books. Paul Speigel, owner of a New York cardealership explains his woes by saying ‘”We’re doing our best to keep up thevolume by discounting, working on our customers, but the Fed’s rate hikes havedampened the ability of many Chevrolet customers to buy that new vehicle. “‘John Tuccillo, chief economist for the National Association of Realtors statesthat the market (for new housing) “fell apart as mortgage rates rose above 9%last fall (1994), and still have not yet recovered. ” (Greenwald, Time, May 1,1995. p81)Another outspoken, and cynical opponent to the Fed’s monetary policy isDr. Michael K.

    Evans, who is president of Evans Economics, Inc. and EvansInvestment Advisors, Boca Roton, Fla. Dr. Evans wote an article in the Aug.

    21,1995 issue of Industry Week entitled “The Gang that Wouldn’t Shoot Straight:Fed’s Trample Over Their Own Rate Cut. “Dr. Evans contends that lowering thefederal funds rate in July was a mistake because the economy was alreadystarting to recover without tampering by the Fed. He claims Greenspan knew fullwell that the economy was on the upswing, but cut rates anyway to try to ensurehis reappointment come March 1996. Dr.

    Evans claims that vice-Chairman AlanBlinder also knew of the recovery but “he could not face his collegues atPrinceton when he returned, unless he pushed for a rate cut. ” (Evans, IndustryWeek, Aug. 21, 1995. p122)Dr.

    Evans concludes that the Fed’s actions in July were “purposelymisleading, cravenly political, and just plain stupid. ” (Evans, Industry Week,Aug. 21, 1995. p122)Many people applauded the actions of the Fed in 1995, and defend themfrom the rampant “fed-bashing”. One of the defenders of the Fed’s monetary policy and Alan Greenspan isRob Norton who wrote an article in the July 24, 1995 issue of Fortune entitled”The Blaming of Dr.

    Greenspan. (Federal Reserve Board Chairman Alan GreenspanTakes Blame for Economic Downturn). ” Mr. Norton agrees with Greenspan that inFebruary 1995 it was essential to raise interest rates because of anunsustainable rate of growth. He says that Greenspan was ahead of the game bydoing this.

    “The conventional wisdom crowd claimed that here was no reason tofear that the economy was going

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