The Federal Reserve's easing moves over the first part of the year not only were taken in light of the contraction of economic activity and the progress in reducing inflationary pressures, but also were prompted by the continued slow growth of the monetary aggregates early in the year and continuing credit restraint by banks and other intermediaries.
These events, combined with a considerable easing of monetary policy, set the stage for a recovery, and a few sectors of the economy actually hit bottom quite early in the year.
Several factors worked to reduce outlays, including the easing of pressures on capacity, the diminished level of cash flow, and the general atmosphere of uncertainty related to events in the Persian Gulf Real spending for equipment plunged during the first quarter; measured in percentage terms, the decline was the sharpest quarterly falloff recorded in nearly eleven years.
These effects of the contraction have been offset, to some degree, by the easing of short-term interest rates, which has restrained the growth of interest payments on the federal debt.
Price developments at earlier stages of processing have been favorable this year, reflecting the easing of capacity pressures and price declines for petrochemical products.