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We are currently in an economic state of transition. The United States has been suffering from an economic recession, and now we are showing some slow positive progress. The Federal Reserve has been utilizing monetary policy to help our economy stabilize and grow. The Federal Reserve has been focusing on inflation and expansion and have been taking measures to help ensure economic stability.
The economy has been rebounding quicker than most of the prognosticators had predicted. Real gross domestic product has increased at an annual rate of -1/4 percent in the second quarter of the year. Real gross domestic product has also flourished at a rate of more than seven percent in the third quarter. The labor market which has been weakening has been showing signs of stabilizing. Almost 00,000 new jobs were created over the July-to-October period. Although the economy seems to be improving additional improvement needs to be made before our countrys labor and capital resources can be fully utilized. Before the most recent employment report, many commentators had portrayed this period as a jobless recovery period. Industrial production has only risen by percent from its cyclical downturn as compared to a 6-1/ percent increase in 10-1 and nearly 0 percent increase on average after the other post-war recessions (Ferguson, 00).
The consumer price index has been affected by changes in food and energy prices. The core measure that has excluded these components has slowed down over the past year. The core CPI is only up 1-1/4 percent from its past level one year ago. The performance indicates that the U.S. economy has obtained effective price stability. The achievement has been obtained by many factors economic slack, quicker productivity growth, steady inflation expectations, and the general publics confidence that the Federal Reserve is dedicated to keeping inflation under control. Current research has revealed that as inflation has decreased over the past two decades the sensitivity of prices to the level of resource utilization has also decreased. Unlike in the past periods, the presence of rising inflation is much less likely to effect the economy as activity improves and the output margin declines. Currently inflation seems more likely to decrease than to increase. Under the current circumstances the central bank has the ability to observe events before it is forced to confront the need to return the position of policy to a neutral position (Ferguson, 00).
Considering the high degree of uncertainty of the economic outlook in the current geopolitical environment, the members of the FOMC firmly believe that the most possible outcome will be that the fundamentals should support a strengthening of economic growth. Business caution is expected to decline over the span of the year to clearly identifiable signs of improving sales. At the present time inventories are lean relative to sales and restocking is expected to provide additional momentum to production in the period ahead. The fast pace of expansion of productivity, the waning effects of previous declines in household wealth, and the highly accommodative position of monetary policy should also continue to increase activity. Even though state and local governments are faced with budgetary problems, their control is likely to counteract only a small part of the stimulus from the past and future fiscal policy actions at the federal level. The strengthening economies of our key trading partners along with the improving competitiveness of U.S. products should be able to generate demand for our exports. In total of all of these factors the federal government has predicted that the country will move to a faster pace of economic expansion while inflationary pressure is expected to remain well contained (Monetary Policy and the Economic Outlook, 00).
Federal Reserve policymakers believe that the most likely outcome for this year will be an increase in the pace of economic expansion. They plan on focusing on economic expansion and maintaining inflation rates. The forces affecting demand this year seem to be on balance contributing to a strengthening of the economic expansion. Currently monetary policy remains extremely accommodative. The federal fiscal policy is and will likely continue to remain stimulative. State and local government spending will most likely continue to be restrained by significant budget challenges. Activity overseas is also expected to improve this year even if it is at a slower pace than in the United States. The increase in growth along with the improving competitiveness of U.S. products should create an increased demand for our exports. Large gains in productivity even though they are unlikely to be as large as in 00 should be able to continue to promote both household and business spending (Monetary Policy and the Economic Outlook, 00).
The Federal Reserve policymakers think that consumer prices will increase less this year than they did during 00, particularly if energy prices help turn around last years sharp rise. Resource utilization should remain adequately relaxed to exert further downward pressure on underlying inflation. The central tendency of the FOMC members projections is for increases in the chain-type price index for personal consumption expenditures (Monetary Policy and the Economic Outlook, 00).
The macroeconomic policies seem to be set for an increase in the pace of economic growth and stable inflation. The growth should be adequate enough to make meaningful progress in reducing the slack in our nations labor and capital resources. The amount of underutilized resources is still large and it may take a significant amount of time to be worked off completely. In the past, our economy has experienced cyclical turns and surprising shocks, and it has proved to be very resilient. It seems that the focus is firmly on stable growth and inflation rates with the hope of utilizing our countries resources and maintaining economic stability.
Resources
Ferguson, Roger. (November 1, 00). Economic outlook. Retrieved November 0, 00, from http//www.federalreserve.gov/boarddocs/speeches/00/00111/default.htm
Monetary Policy and the Economic Outlook. (February 11, 00). Retrieved November 0, 00, from http//www.federalreserve.gov/boarddocs/speeches/00/00110/default.htm
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