Monetary Policy Report to the Congress
The economic expansion in the United States became increasingly well established in the first half of 2004, but the pace of inflation picked up from its very low rate in 2003. At the time of the February Monetary Policy Report to the Congress, considerable evidence suggested that the U.S. economy had moved into a period of more-vigorous expansion. Nonetheless, some businesses remained cautious about hiring and investment. In the event, businesses stepped up their hiring in the spring, and capital spending seems to have continued apace.

Over the first half of this year, energy prices soared, and inflation in core consumer prices increased. To some extent, the upturn in core inflation reflected the indirect effects of higher energy prices. In addition, strengthening aggregate demand worldwide induced a surge in the prices of many primary commodities and industrial materials, and the decline in the dollar in 2003 put upward pressure on import prices. In this environment, firms were better able to pass on the higher costs of imports, raise the prices of domestically produced items that compete with imports, and in many cases boost their profit margins.

Monetary policy was very accommodative at the start of 2004 as the Federal Open Market Committee (FOMC) sought to provide continuing support to the economic expansion. Following some upbeat labor market reports, solid growth in output, and a pickup in core consumer price inflation, the FOMC announced at its May meeting that it believed that the monetary policy accommodation then in place could be "removed at a pace that is likely to be measured." At its June meeting, the FOMC decided to begin moving the federal funds rate back toward a more neutral setting.

Although some of the recent data have been on the soft side, the available information on the outlook for the U.S. economy is, on balance, positive. The prospects also seem favorable for inflation to remain contained in the period ahead.
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Summary of Papers Presented at the Conference "Models and Monetary Policy: Research in the Tradition of Dale Henderson, Richard Porter, and Peter Tinsley"
Jon Faust, Athanasios Orphanides, and David L. Reifschneider
On March 26 and 27, 2004, the Federal Reserve Board held a conference in Washington, D.C., on the application of economic models to the analysis of monetary policy issues. The papers presented at the conference addressed several topics that, because they are of interest to central bankers, have been a prominent feature of Federal Reserve research over the years. In particular, the papers represent research in the tradition of work carried out over the past thirty-five years at the Federal Reserve by three prominent staff economists -- Dale W. Henderson, Richard D. Porter, and Peter A. Tinsley. Thus, the conference partly served as a celebration of the contributions made by these individuals to policy-related research since the late 1960s.

Among the specific topics addressed at the conference were the influence of uncertainty on policymaking; the design of formal rules to guide policy actions; the role of money in the transmission of monetary policy; the determination of asset prices; and econometric techniques for estimating dynamic models of the economy.
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Credit Report Accuracy and Access to Credit
Robert B. Avery, Paul S. Calem, and Glenn B. Canner
Data that credit-reporting agencies maintain on consumers' credit-related experiences play a central role in U.S. credit markets. Analysts widely agree that the data enable these markets to function more efficiently and at lower cost than would otherwise be possible. Despite the great benefits of the current system, however, some analysts have raised concerns about the accuracy, timeliness, completeness, and consistency of consumer credit records and about the effects of data problems on the availability and cost of credit.

In this article, the authors expand on the available research by quantifying the effects of credit record limitations on the access to credit. Using the credit records of a nationally representative sample of individuals, the authors examine the possible effects of data problems on consumers by estimating the changes in consumers' credit history scores that would result from "correcting" the problems in their credit records. Moreover, the authors report results for consumer groups segmented by strength of credit history (credit history score range), depth of credit history (number of credit accounts in a credit record), and selected demographic characteristics.
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Report on the Condition of the U.S. Banking Industry: First Quarter, 2004
Assets at reporting bank holding companies rose $325 billion (or 3.7 percent) in the first quarter of 2004 as the "fifty large" bank holding companies acquired investment securities as part of broader efforts to adjust interest rate sensitivity. Nonperforming assets and net charge-offs continued their sustained decline. Net income of reporting bank holding companies, which rose to nearly $30 billion for the quarter, was supported by stronger net interest income, lower provisions for loan losses, and significant gains associated with the sale of investment securities previously held in portfolio. More than one-third of the quarterly increase in net income was provided by "all other" bank holding companies as provisions for loan losses declined dramatically, in part because of seasonal influences. Earnings of these institutions had declined in the previous two quarters.
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Staff Study Summary
Mergers and acquisitions have significantly changed the U.S. banking industry over the past quarter century. Staff Study 176, Bank Merger Activity in the United States, 1994-2003, analyzes patterns in detailed and comprehensive data for the 3,517 mergers consummated among commercial banks and thrift institutions from 1994 to 2003.
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Announcements
Press releases and Board staff changes for the previous quarter.
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Legal Developments
Various bank holding company, bank service corporation, and bank merger orders.
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