Consider the tone of the statement in Exhibit A. After reading this statement, do you think the Federal Reserve would be more likely to increase or decrease the interest rate in the future meetings? Provide a short explanation.

 

Exhibit A: FOMC Statement, October 25, 2006 October 25, 2006 FOMC statement For immediate release Share The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. Economic growth has slowed over the course of the year, partly reflecting a cooling of the housing market. Going forward, the economy seems likely to expand at a moderate pace. Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand. Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.