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The Economy in Perspective

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Hanging in the balance … According to Fed-watchers, the Federal Reserve is nearing a crossroads in its thinking about the need for further reductions in the federal funds rate. On one hand, they say, the economy remains weak despite the 2½ percentage point reduction already made this year; on the other hand, there are some signs that inflation and inflation expectations may be stirring. Since the Fed is presumed to be sensitive to both inflation and the pace of economic growth, it is reasonable for Fed-watchers to assess carefully the balance between the risks that pertain to each. Indeed, the FOMC referred explicitly to the balance of risks between economic activity and inflation in its May 15 press release, which announced a reduction of ½ percentage point in the funds rate.

Suggested citation: "The Economy in Perspective," Federal Reserve Bank of Cleveland, Economic Trends, no. 01-06, pp. 01, 06.01.2001.

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