Macroeconomic situation and analysis

Macroeconomic Situation

What is the "current macroeconomic situation" (e.g. worrying about inflation or recession) in the U.S. What should the U.S. Congress and the Federal Reserve do about it?

unemployment rate continues to climb. It increased to nearly double-digit figures, 9.4% this May. But the 345,000 jobs lost were fewer than anticipated, sparking hopes that the recession may be ending. Conventional Keynesian wisdom prescribes that the federal government should increase government spending to foster consumer purchasing power and fuel economic growth. "The Obama administration pointed to the slowdown in job losses as proof that its $787 million package of spending measures was stimulating the economy" (Goodman & Healy 2009). However, the auto industry, particularly the American car manufactures GM and Chrysler (both of whom have recently entered Chapter 11 bankruptcy) is still floundering, and many jobs depend on the automotive sector's survival. Home foreclosures are rising, real estate prices are falling -- all suggest a recovery is not on the horizon.

Government spending is supposed to contract when inflation is rising as the economy enters a period of heated expansion. Yet despite the recession, prices of key subsistence goods is going up: "gasoline and medical costs rise, putting pressure on household finances. Average hourly wages were 3.1% higher last month than they were in May 2008, but the month-to-month increases in April and May were just 0.1%, 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).