



Current Key Economic Indicators

as of April 4, 2015



Employment and Unemployment


Real GDP


Federal Reserve







[A last paragraph is not shown.]

The complete press release is available at:

Notes to Teachers



Student Interactive

Have your students do the following multiple choice activity:


Following most Federal Open Market Committee announcements, newspapers across the country have front-page stories about the Federal Reserve actions to change interest rates and increase or decrease spending and employment in the U.S. economy. Attention increased when growth in spending and output slowed in the economy in late 2000 and 2001. The economy entered a recession in March of 2001 and came out of the recession in November of that year. We then began to grow but without a rise in employment (in fact, employment continued to fall). The Federal Reserve primary concern was to stimulate spending, production, and employment in the economy.

Once the economy began to grow, the focus shifted to reduction of the monetary stimulus and to potential inflation. The current announcement reflects confidence that economic conditions are good, some concern that growth may be slowing, and that attention should be paid to the possibility of increases in inflation in the future.

This case study is intended to guide students and teachers through an analysis of the recent and current actions of the Federal Reserve. An understanding of monetary policy in action is fundamental to developing a thorough understanding of macroeconomic policy, the U.S. economy, and financial markets.

Federal Open Market Committee (FOMC)

The primary function of the FOMC is to direct monetary policy for the U.S. economy. The FOMC meets about every six weeks. (The next meeting is December 13.) The seven Governors of the Federal Reserve Board and five of the twelve Presidents of the Federal Reserve Banks make up the committee. The staff of the Federal Reserve implements the recommended policies.



Guide To Announcement

Beginning in June of 2004, the Federal Open Market Committee has increased the target for its federal funds rate at each of its meetings.

The first paragraph of the announcement summarizes the current monetary policy changes - this month it is the decision to increase the target federal funds rate for the twelfth meeting in a row. It is increasing the target from 3.75 percent to 4 percent.


In the second and third paragraphs, the reasoning behind the decision is presented. Reference is made to negative economic effects of the damage done by the hurricanes in the southeastern part of the U.S. The statement that “monetary accommodation, coupled with robust underlying growth in productivity, is providing support to economic activity…” has two primary parts. “Monetary accommodation” refers to the rather dramatic lowering of interest rates from the beginning of 2001 to June of 2003. The FOMC members believe that even though interest rates have been increased since that time, they are still relatively low and still have a stimulative effect on the economy. Productivity continues to increase and that also has a positive effect on growth in output.

The committee does recognize potential inflationary changes, but points to the relative low increases in price indexes when prices of food and energy are removed and to what it believes are expectations that prices will be relatively stable for some time.

In the third paragraph the committee indicates that the risks are balanced between inflation (“price stability”) and sustainable growth. This means that the chances of increased inflation and chances of a slowdown in the economic growth are about equal. Because it is not concerned with immediate inflationary pressures and believes that the economy is growing rapidly enough, it can raise the target and not risk contributing to either problem. The pace being “measured” has been interpreted by most observers as meaning that the target will be increased by one-quarter or one-half of a percentage point at the next several meetings. The final sentence is added simply to reassure analysts that if expectations of inflation change, the FOMC will change its policy quickly and increase the target more rapidly.


The Federal Reserve Board of Governors actually sets another interest rate known as the discount rate, through a technical process of approving requests of the twelve Federal Reserve Banks. The discount rate change was described in a last paragraph of the announcement and will be discussed in the next FOMC case study.

Figure 1: The Target Federal Funds Rate and the Discount Rate

Data Trends




Federal Open Market Committee (FOMC)

The primary function of the FOMC is to direct monetary policy for the U.S. economy. The FOMC meets about every six weeks. The next meeting is June 29 and 30, 2005. The seven Governors of the Federal Reserve Board and five of the twelve Presidents of the Federal Reserve Banks make up the committee. Governors are appointed by the U.S. President and confirmed by the U.S. Senate. The Boards of each Federal Reserve Bank select the presidents of the banks. The current committee is described in the fourth paragraph of the announcement. (There are only eleven members listed as there is currently one opening on the committee as a Governor is in the process of leaving and has not been replaced.)

Tools of the Federal Reserve

Open Market Operations






[The Federal Reserve engages in open market operations on a daily basis - not just when they change the target for the federal funds rate. The amount of money that banks hold in reserves changes throughout the year and the Federal Reserve will buy or sell bonds to maintain the target federal funds rate at the desired level.]


The Federal Reserve also has two other tools that may be used to influence expansion and contraction in the money supply. Those tools – changes in the discount rate and change in the required reserve ratio – will be discussed in future case studies.

How does Monetary Policy Work?





Have your students do the following multiple choice activity:


  1. What are the Federal Reserve current observations and concerns?



    [The Federal Reserve can buy or sell bonds, which in turn lower or increase the federal funds rate. To reduce the stimulative effects, the FOMC is increasing the target for the federal funds rate.]



  4. How do changes in monetary policy affect spending in the economy?

    [If banks have greater reserves due to increased deposits, they can make more loans. The increase in loans and the resulting lower interest rates encourage business (and consumer) borrowing and spending. The increased spending should result in increased business production and employment.]

  5. How long does it take monetary policy to have an effect on the economy?
