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Federal Open Market Committee
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It is widely acknowledged that the Fed can control the average inflation rate over a period of time reasonably well. Because of this and the Federal Open Market Committee's (FOMC's) long-standing commitment to price stability, the author argues that the FOMC has an implicit long-run inflation objective (LIO)-lower and upper bounds to the long-run inflation rate. He shows that the statements made by the FOMC in 2003 clarified the lower bound of its LIO and that the average of long-run inflation expectations responded by rising about 80 basis points. Moreover, consistent with reducing the market's uncertainty about the FOMC's LIO, long-run inflation expectations became more stable. The FOMC has recently been more specific about the upper bound of its LIO as well. The FOMC could eliminate ...
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(2) Add to the mix the current subprime mortgage debacle, the shrinking value of the dollar overseas, record high unemployment figures and housing prices rapidly declining, and the impact on the global financial markets as well as the economy is clear and the outlook grim, at least in the near term. In a move intended to stem inflation and stimulate growth, on March 18, its policy-setting arm, the Federal Open Market Committee, lowered its target for the federal funds rate 75 basis points to 2-1/4% and also approved a 75-basis-point decrease in the discount rate to 2-1/2%.
