Question

Action taken by the Federal Reserve in June of 2004 was an

indication that the Fed feared the possibility of rising inflation.
What action was taken by the Fed to prevent that possibility?

Answer 1

In June 2004, the Federal Reserve took contractionary monetary action by beginning to raise the federal funds rate to combat potential inflation, eventually reaching a rate of 5.25% by the end of 2006.

Step-by-step explanation:

The action taken by the Federal Reserve in June of 2004 to prevent the possibility of rising inflation was an increase in the federal funds rate. This policy action is known as contractionary monetary policy, which is employed to cool down the economy and prevent inflation from escalating. As growth picked up and inflation was a concern, the Fed started raising the federal funds rate in the middle of 2004. By the end of 2006, the rate had been increased to 5.25% as a result of 17 consecutive quarter-point rate increases. This action is similar to past instances where the Fed acted to manage inflationary pressures, such as increasing the federal funds rate between 1993 to 1995 and 1999 to 2000 when inflation was perceived as a risk. The Fed's determination to maintain inflation at a manageable level is evident from historical context, such as aiming for a 2% inflation target as referenced by Fed Board member Ben Bernanke's preference in the early 2000s.