Recent Developments A number of important forces have been shaping recent developments in the U.S. economy. One has been a recovery of financial markets from the disruptions of last fall. By the end of 1998, the extreme withdrawal from risk-taking and consequent seizing-up of markets had largely dissipated.
The better overall financial environment provides a more supportive background for improved real economic conditions. Monetary policy should never be used to stimulate total nominal demand artificially when the stimulation will only be reflected in higher inflation. Monetary policy should also not unduly restrict aggregate nominal demand once the objective of stable overall financial conditions has been accomplished.