When Alan Greenspan presented the Federal Reserve's semi-annual report on monetary policy to the Subcommittee on Domestic and International Monetary Policy, the Committee on Banking and Financial Services, and the U.S. House of Representatives on February, Dr. Greenspan touted a cautionary yet favorable view of the U.S. economy. He states that 'With inflationary pressures apparently receding, the previous degree of restraint in monetary policy was no longer deemed necessary, and the FOMC consequently implemented a small reduction in reserve market pressures last July.' (Greenspan, 1996, Speech)
During the Summer and Fall of 1995, the economy experienced a strengthening of aggregate demand growth. According to Greenspan, this increase in aggregate demand brought finished goods inventories and sales into near equilibrium. 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. He states 'the economy, as hoped has moved onto a trajectory that could be maintained--one less steep than in 1994, when the rate of growth was clearly unsustainable, but one that nevertheless would imply continued significant growth 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 with inflationary expectations waning, Chairman Greenspan and the Federal Reserve cut rates again in December. (Greenspan, 1996, Speech)
There are, of course, critics of 1995's monetary policy. Most of the criticism 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, 1995 issue of Time magazine written by John Greenwald, he explains that the economy might not be coming in for a 'soft landing' like the fed predicts. Trying to sustain 2 to 3...