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US Monetary policy critique

In a previous post on iProceed blog, we had mentioned that there are several encouraging indicators for the 2004 holiday season. iProceed has, however, not yet lifted its warning on a recession in 2005.



It was, therefore, encouraging to read a relatively positive statement from the Fed. In simple words, this is what Fed is saying:

  1. Everything is in place for moderate economic growth in the future.
  2. There is only moderate risk that higher economic growth may lead to inflation.
  3. Fed will act as and when economic conditions change.
Implications of monetary policy

  • Since only moderate growth is expected, expect only a modest, but gradual, increase in interest rates during next 12 months.
  • If Fed's monetary policy leads to low inflation, it is good for everyone, particularly in light of rather unusually high energy prices and expectations that taxes will go up in 2005.
  • Assess the impact of higher interest rates on your business and develop a strategy accordingly.