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20 <br /> immediately after the Great Recession. Table 1 shows the federal funds rate—one of the Fed's <br /> policy tools— averaged 3.8% during 1990-2007 but was virtually zero from 2007 to 2014. <br /> Likewise, the annual growth rate in the money supply—another Fed tool—almost tripled <br /> between the two periods. Two reasons—besides the weak economy—these actions didn't spark <br /> higher inflation (as many feared)were the unprecedented increase in excess reserves held at the <br /> Fed and the dramatic drop in money velocity. The increase in excess reserves was a way for the <br /> Fed to create money as a backstop for the banks, but to keep that money at the Fed so as not to <br /> elevate prices. Also, the decline in money velocity reduced the ability of dollars in circulation <br /> to generate higher inflation. <br /> At the end of 2015 the Fed announced a modest increase(0.25%points) in the federal <br /> funds rate, the first of many expected rate hikes. Growth rates in both the money supply and <br /> excess reserves also moderated in 2015, and the reduction in money velocity was also slower. <br /> All these moves signaled a shift away from economic stimulation toward economic neutrality of <br /> Fed policy. <br /> The National Economy in 2016 <br /> The last(far right) column in Table 1 presents forecasts for the national economic <br /> indicators in 2016. In general, the forecasts are upbeat and suggest a national economy growing <br /> at a slightly faster pace than in 2015. Among the General measures, the biggest changes will be <br /> in inflation and interest rates. Oil prices will stop falling— and may even rise modestly—in <br /> 2016, which will cause the all-item CPI rate to be closer to 2% - as compared to the 0.5%rate in <br /> 2015. Higher measured inflation will reduce some of the real per capita gains in personal <br /> 7 <br />