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FOR IMMEDIATE RELEASE
Economic OutlookVice Chairman Donald L. KohnAt the Greater Philadelphia Chamber of Commerce 207th Annual Meeting,Philadelphia, PennsylvaniaOctober 5, 2007 -- The economic picture has evolved rapidly over the past few months, and on September 18, the Federal Reserve eased monetary policy, cutting its target for the federal funds rate 1/2 percentage point. I thought it might be useful this morning to give you my take on why this action was necessary and my sense of what might lie ahead for the economy. I need to emphasize that these are my views and are not necessarily those of my colleagues on the Federal Open Market Committee (FOMC).1 A brief recap of where the economy has been will be helpful in understanding where we are now and where we might be headed. The economy has been growing at about a 2 percent pace since the middle of 2006 despite being held back by a weakening housing market. Job gains have averaged about 125,000 per month over the past year or so, and the unemployment rate has hovered around 4-1/2 percent, a fairly low rate historically for the U.S. economy. When the members of the Federal Reserve Board and the presidents of Federal Reserve Banks made their semi-annual economic projections this past July, most of us saw growth strengthening a little next year as the drag from the housing adjustment abated, with the unemployment rate perhaps drifting up just a little. Inflation had been buffeted by large swings in food and energy prices, but underlying inflation rates had edged down since the summer of 2006; on balance, we expected relatively low inflation ahead, although we were concerned that tight labor and product markets could lead to further price pressures.
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