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Economic Quarterly

Winter 2000

Current Challenges for U.S. Monetary Policy

J. Alfred Broaddus, Jr.

Economic theory teaches that higher trend productivity growth requires higher real interest rates to maintain balance between aggregate demand and supply and so prevent the emergence of inflation. The challenge for monetary policy is to determine when and by how much real rates should rise. An additional challenge is to convince the public that these rate increases are necessary for maintaining demand-supply balance and for maximizing long-term growth in the economy.

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