Michelle R. Garfinkel examines the economic factors that influenced the Federal Open Market Committee’s deliberations and decisions in 1989. In reviewing the FOMC’s long- and short-run policy decisions, Garfinkel emphasizes how the FOMC sought to balance the risk of greater inflationary pressures against that of a weakening economy. At the beginning of the year, the threat of a worsening of the underlying trend in inflation drove the formulation of policy. As evidence of a weakening economic expansion accumulated and the outlook for inflation appeared more promising, the FOMC shifted its primary focus to the possibility of a future slowdown in economic activity. The effect of this shift on policy, however, did not emerge immediately, for the FOMC understood that its interpretation of economic data was subject to great uncertainty, and it did not want to jeopardize either the progress that had been made toward achieving its ultimate goal of long-run price stability or its credibility as an inflation-fighter.