Module 4 Extra Credit Posts for Fall 2025

October 31st

Usually the FOMC announcement doesn't come on a test day, but this year it did. So I didn't stress you about it.

But, they did meet on Tuesday and Wednesday, as scheduled, 6 weeks after the previous meeting that we covered in class.

The decision for this week was to reduce their interest rate target by another quarter point (0.25% or 25 basis points).

That's a repeat of what they did last time. It's consistent with the metaphor I've used in class a few times that they proceed by taking many "baby steps" in the same direction. At the time that I'm writing this (during your test) FRED has not updated their graph yet, but my guess is that if you click on this link now it will show 1 larger, and 4 smaller, steps downward over the last 14 months.

You can also see on the left hand side of that graph how they raised their interest rate target in many, sometimes bigger steps, through 2022-23. This was to slow the economy down after it become clear that the expansionary fiscal policy packages passed in 2020-21 (to alleviate the effects of lockdowns) had gone too far and created an inflation problem.

I would describe this as them being concerned about the side effect of an expanding economy in 2022-23 (inflation), and as being more concerned about supporting the economy with the effect of expansionary monetary policy in 2024-25 (while now being less concerned about the side effects).

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