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Macroeconomic Situation
Delivering a speech to the American Bankers Association in Atlanta on June 7, 2011, Federal reserve Chairman Ben Bernanke posited a pessimistic view of current macroeconomic conditions. "The U.S. economy is recovering from both the worst financial crisis and the most severe housing bust since the Great Depression, and it faces additional headwinds ranging from the effect of the Japanese disaster to global pressures in commodity prices" (Hilsenrath, J. June 7, 2011). In this context it is useful to analyze the current economic recovery to see which if any additional monetary or fiscal policy measures could speed the pace of recovery and continue its upward trajectory.
What is the Current Macroeconomic Situation in the U.S.
According to economists the "Great Recession" ended in the second quarter of 2009 (Isidore, C. September 20, 2010); from that point the economy has slowly climbed out of negative...
This recovery however, has been ponderous and difficult fraught with continuing downward pressures: food and energy inflation, burgeoning federal deficits, high unemployment, and a deleterious housing sector. Mr. Bernanke's view of the economy though while conceding these headwind pressures does see the "recovery continuing at a moderate pace with improvement later this year" (Hilsenrath, J. June 7, 2011). The economic slowdown is evident when one analyzes the data over the last several months across several key indicators.
A main area of concern is the slowing growth rate of Gross Domestic Product in the first quarter of 2011 annualized at 1.8% (Feldstein, M. June 7, 2011). Yet this growth rate may even understate the problem. "Two-thirds of that 1.8% went into business inventories rather than sales to consumers or other final buyers. This means that final sales growth was at an annual…
A third disturbing piece of news is the continuing high level of unemployment and slow level of job growth. In May job growth was an anemic 54,000 addition to payroll (Hilsenrath, J. June 7, 2011), "far below the roughly 200,000 needed each month to reduce the unemployment rate" (Bernard, S. & Arbel, T.N.D.). In step the unemployment rate in May increased from 8.89% to 9.1% (Hilsenrath, J. June 7, 2011).
Lastly, "the index of leading indicators fell in April, only the second decline since it began to rise in the spring of 2009" (Feldstein, M. June 7, 2011). This index which is comprised of eleven key economic data streams looks forward to forecast economic activity (New York University. N.D.). The fall in the index suggests that the economy could be in for a rough ride in the second half of 2011 and into 2012.
The question however, is why with both expansionary fiscal and monetary tools operating at full capacity over the last two years has the economy
1%, to a seasonally adjusted $18.54, from $18.52, according to the Labor Department. Wages for manufacturing workers fell 0.1%" (Goodman & Healy 2009). Furthermore, "interest rates on government debt surged, hitting their highest levels in six months, as investors bet that inflationary pressure would accompany any recovery" (Goodman & Healy 2009). Long-term prospects seem dicey: major investment firms are now either extinct or severely compromised and even the unemployment data may
Typical monetary policy to control inflation will be difficult for two reasons according to Fleckenstein. First, because the economy recovery is likely to be very fragile, the government will be reluctant to increase interest rates in the short run. Further, given the size of the government deficit, the government will also not want to increase interest rates because it would increase the interest burden. To avert the disastrous scenario predicted
If the Fed is more concerned with the core CPI, then rates are unlikely to be raised this year. An increase in rates would slow the economy down. However, if total CPI increases at a faster rate, this could force the Fed to raise rates slightly. On the whole, however, the data does not support DESA's pessimism about the state of the American economy. The Federal Reserve is currently using
Macroeconomic Situation in the U.S.: Corrective Fiscal and Monetary Policy December 2007 marked the onset of the Great recession, which ended in mid-2009 but left the U.S. economy struggling through the damage wrought by its severity. Federal policy has gone a long way in the prevention of an occurrence of another recession, but growth remains too sluggish and inadequate for the full-health restoration of the economy. Vigorous and sustained fiscal
Macroeconomic Situation A discussion given by the Federal Reserve Bank of Chicago, on June 8, 2010, analyzed America's macroeconomic fiscal situation by opining that the economy is recovering from the recession and that national GDP would increase by, at least, a moderate 3.5% that year. Recovery will be slow given that climbing out takes time and that, given the severity of the recession, a great deal of growth needs to be
While that was not the case for the past year, at this point, with two quarters of accelerating economic growth, tax cuts serve this purpose. Because there is a time lag between the implementation of tax cuts and their impact on the economy, it is recommended that they are combined with short-term stimulus as a two-pronged fiscal expansion. For its part, the Federal Reserve has an expansionary policy in place