U.S. Federal Reserve System a) in his July 2008 testimony to the U.S. Congress, Chairman of the Federal Reserve System, Ben Bernanke, characterized the state of the U.S. economy during the first of that year as "sluggish," concomitantly with an elevated inflation rate. To illustrate this, he draws upon a number of economic trends to show the slowdown of economic expansion.
The labor market has for example fallen at an average of 94,000 jobs per month through June. Construction and manufacturing employment has also faced a significant decline. While other sectors are not as hard hit, there have been an overall decline in the employment rate. The unemployment rate has therefore risen to 5.5% at the time of the testimony.
The housing sector has also faced a decline in activity. Existing home sales have not declined as significantly as new home sales. This has also affected the building market, with homebuilders scaling back their contracts. Concomitantly, house prices have been falling, a trend that contributed to an increase of foreclosures and further downward pressure on home prices.
Although personal consumption expenditures have advanced more steadily than might have been expected in light of the other financial trends, it cannot be denied that real earnings have been somewhat stagnant as a result of the economic forces at the time.
Business outlays for equipment and software were also practically non-existent during the first quarter of 2008, while nonresidential construction also slowed considerably. Fixed investments in this sector have however expanded somewhat, although firms remain concerned about the economy.
A b) All the issues surrounding the economy have an influence on both inflation and recession. Rather than being focused upon a particular issue, there appears to be a general concern for the overall effects of both the rising inflation and recession upon the economy and citizen well-being on the whole.
As such Chairman Bernanke addresses a number of challenges that have faced the economy during 2008. The overall credit conditions have for example been severely affected by housing market and other economic trends. This has been exacerbated by energy and commodity price increases, which have affected household buying power negatively.
Concomitantly, the inflation rate has remained high at nearly 3.5% for the first five months of 2008. Chairman Bernanke also noted that the trend in rising prices was likely to further increase inflation. Furthermore, oil production has risen only slightly, despite sharp price increases. This indicates tighter government control over oil reserves.
The declining value of the dollar in foreign markets also seems to be a matter of concern for congress that both result from and in turn affect the volatility of oil prices. There does not seem to be a particular emphasis on any single aspect of inflation or the recession. Instead, the general consensus appears to be that all the elements within the economic system have some influence on both the recession and inflation, and that they should be taken into account as such.
You’re 83% through this paper. Sign up to read the full paper.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.