The Fed Keeps Shifting Its Monetary Gears

When total adjusted bank reserves, which the Federal Reserve had kept in the deep freeze during most of 1990, rose sharply around the turn of the year, the financial markets concluded that the Fed was finally easing aggressively. Thus, Fed watchers were taken by surprise when total reserves fell back to their old lows in late January. "The Fed is apparently still obsessed with fighting inflation," says economist Nancy R. Lazar of C. J. Lawrence Inc. She notes that Fed Chairman Alan Greenspan recently indicated that he thought that the worst of the recession "could be behind us." If he's wrong, says Lazar, "the longer the Fed postpones adding reserves, the weaker money growth and the economy will be."

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