The Federal Reserve Bank of Richmond today released its 2011 Annual Report, which features the essay, "Unsustainable Fiscal Policy: Implications for Monetary Policy."
The debt of the U.S. government that is held by the public reached 67.7 percent of gross domestic product in 2011, the highest level since World War II. Trends point to large budget deficits – which would add further to the national debt – for many years to come. If the United States were to approach its "fiscal limit," the Federal Reserve might face pressure to produce inflation revenue that would allow the government to pay down its debt with cheaper dollars, jeopardizing the Fed's independence and commitment to price stability. The essay concludes that the United States must avoid this scenario by placing its spending, taxation and borrowing policies on a more sustainable path.
In addition to the essay and the Bank's financial statements, the Annual Report includes a summary of the region's economic performance in 2011 and an overview of the Bank's ongoing efforts to strengthen the communities it serves in the Fifth Federal Reserve District.
The Richmond Fed serves the Fifth Federal Reserve District, which includes the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia. As part of the nation's central bank, we're one of 12 regional Reserve Banks that work together with the Federal Reserve's Board of Governors to strengthen the economy and our communities. We manage the nation's money supply to keep inflation low and help the economy grow. We also supervise and regulate financial institutions to help safeguard our nation's financial system and protect the integrity and efficiency of our payments system.