The Current State of the U.S. Economy Essay

During the Federal Reserve meeting in April 2016, the range was left unchanged for federal funds at 0.25 percent to 0.5 percent (TRADING ECONOMICS, 2016). Labor markets experience growth confirmed by policy makers, yet economic activity was monitored as being slow (TRADING ECONOMICS, 2016). The risks associated with the financial developments of the country have ceased (TRADING ECONOMICS, 2016). The average percentage of interest rate in the U.S. averaged at 5.8. March of 1980 a record high was recorded at 20% (TRADING ECONOMICS, 2016). The lowest interest rates were recorded in the month of December 2008 at 0.25% (TRADING ECONOMICS, 2016).

The health of the current U.S. economy appears to be growing gradually. The second quarter real GDP growth was 3.7% and the unemployment rate declined to 5.3%. The U.S Federal Reserve (Fed) is expected to raise interest rates in the near future when it sees clear signs of strong economic growth and improvements in the job market.

During the Federal Reserve meeting in April 2016, the range was left unchanged for federal funds at 0.25 percent to 0.5 percent (TRADING ECONOMICS, 2016). Labor markets experience growth confirmed by policy makers, yet economic activity was monitored as being slow (TRADING ECONOMICS, 2016). The risks associated with the financial developments of the country have ceased (TRADING ECONOMICS, 2016). The average percentage of interest rate in the U.S. averaged at 5.8. March of 1980 a record high was recorded at 20% (TRADING ECONOMICS, 2016). The lowest interest rates were recorded in the month of December 2008 at 0.25% (TRADING ECONOMICS, 2016).

The discussion of whether the Federal Reserve should raise the federal funds rate is a highly contentious one. Members of the Federal Reserve (“Fed”) and academic economists disagree about what constitutes appropriate future macroeconomic policy for the Unites States. In the past, the Fed had been able to raise rates when the unemployment rate was under 5% and inflation was at a target of 2%. Enigmatically, since the Great Recession and despite a strengthening economy, year-over-year total inflation since 2008 has averaged only 1.4%—as measured by the Personal Consumption Expenditures Price Index (“PCE”). Today, PCE inflation is at 1-1.5% and has continuously undershot the Fed’s inflation target of 2% three years in a row. (Evan 2015) In the six years since the bottom of the Great Recession the U.S. economy has made great strides in lowering the published unemployment rate from about 10% back down to about 5.5%. In light of this data, certain individuals believe that the Federal Reserve should move to increase the federal funds rate in 2015 because unemployment is near 5% and inflation should bounce back on its own (Derby 2015). However, this recommendation is misguided.

The news mediums, television, radio, print, or social media give information 24-hours a day regarding the economy. Individuals are not so sure about the reports issued on almost an hourly basis that are stating the economy of United States is improving. Many Americans are still without jobs, and do not believe their income can continue to support their families. The cost of purchasing a home is going up in many areas across the country, which is good for the market, but can be bad for the first time homebuyer. Unemployment, expectations, consumer income, interest rates are economic factors that influence individuals behavior and the United States fiscal policy.

I agree with Paul Krugman. The Federal Reserve Bank should put more money into economy because it can stop increase inflation. I believe that if the Federal Reserve Bank will put in more money in the economy this would bring positive outcomes. Money putted in the economy will regulate number of inflation. Also, Arnold says that” If according to classical economists, the economy is self-regulating, then a recessionary gap or an inflationary gap is only temporary”(266). It is true that inflation gap can be stopped because it is temporary and if the Federal Reserve Bank would put money into economy it will help to stop inflation. Besides, if the Federal Reserve Bank puts money into economy to invested, more people will invest at low interest

On March 15, 2017, the Federal Reserve raised benchmark interest rates to a range between .75 and 1 percent, a move that markets did not expect until later this year. The stock market is flourishing, employment and wages are increasing, and many feel hopeful that the economy is improving. But the Fed raised rates to “prevent the United States economy from overheating”, writes Applebaum. While Trump plans to stimulate

On September 18, 2013 the Federal Reserve reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In addition, the committee agreed to continue its monthly $85 billion purchase of Treasury and mortgage-backed securities as long as the unemployment rate remains above 6.5 percent. Inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal and longer-term inflation expectations continue to be well anchored .

economy. Economist Allen Sinai said, "The Greenspan Fed is the all-time champion in American history (Church par. 1)." In 1996 and 1997 he didn't do much of anything to the interest rates. From February 1996 to December 1997, the Fed made only one change in interest rates: a quarter-point increase in March of 1997. He resisted pressure from inside and outside the Fed to slow down the economy. Instead of being overly concerned about inflation, he seemed to have accepted the idea that deep changes in the economy have made sustained growth possible without pushing prices up. (Church par. 2) Because of Alan Greenspan, the Fed has learned to be more patient. It allows the economy to grow faster than expected without putting on the brakes by raising interest rates. However, Greenspan always stays on guard. He is a renowned numbers cruncher who keeps tabs on the most obscure corners of the economy. Robin Leight-Pemberton said that he was "likely to back up his predictions by citing such obscure data as vacuum-cleaner sales in Iowa (Church Par 3)." Greenspan is reaping the praise of the financial community. There is a widely held sense that he has masterminded the nation's prosperity. As many people are becoming stockholders, they regard him as a "living

Over the years the federal government has raised interest rates a half a percent every time during the course of time intervals every six months or semiannual year. The increases every so often occurred during the severe times of inflation. Inflation rates in the United States averaged 3.31 percent from 1914 until 2015. The all-time high of inflation rates occurred in June of 1920 with a 23.70 percent,

The central bank has kept its interest rates in the range of 0pc to 0.25pc for more than six years. Before the Federal Open Market Committee's statement was issued, economists expected that the Federal Reserve might increase rates before September.

The rate of inflation in the United States declined to a 4-year low in October 2013 and reached its lowest rate since October 2009. According to recent releases, the inflation rate in the United States eased to 1 percent in October 2013, which was a 0.2 percent decline from the previous month. Interest rates in the United States have continued to rise, particularly on 10-year Treasury bonds. In February this year, these rates had risen to 2.27 percent, which was an indication of approximately 10 percent loss in the price of the bond. Nonetheless, the Federal Reserve has kept the interest rate on long-term bonds to an unexpected low through its unconventional monetary policy. This implies that the main reason for the current interest rates is the unconventional monetary policy i.e. quantitative easing regarding the purchase of huge amounts of Treasury bonds and other long-term assets.

After seven years of the most accommodative monetary policy in the history of the US, on the 16th of December last year, the Fed decided to raise interest rates from 0.25% to 0.5%. During the last few months, investors have reacted positively on the Yellen 's comments about the future interest rate raise. The Fed does not look to be determined to go ahead with raising interest rates or at least not four times

The concern with the current slow growth of the Fed Funds Rate is that there is a similar pattern as there was prior to the decline in 2008, where inflation tanked and the Fed Funds Rate, which was high at 4.24% was not enough to halt the inflation drop. The similar pattern in inflation and the Fed Funds Rate can be seen in the two graphs below. If the Federal Open Market Committee does not increase the rate of the growing Fed Funds Rate within the next few quarters the likeliness of another recession increases. Although it would not be as extensively damaging as the recession in 2008, a recession would be nonetheless detrimental to the economy, as we would be set back in all the economical progress that has been made in the past 10 years, as shown in the graphs above. Currently, the Federal Reserve has set the rate to rest at a target range of 1 to 1-1/4 percent. The Federal Open Market Committee acknowledged in their November meeting that inflation has more headway to make until it is at the two-percent mark they have set as a long term target. This situation contains both positive and negative elements. A low inflation rate benefits consumer confidence, because consumers are easily able to manage the gradual inflation and do not see change reflected in day to day consumption since inflation rises slowly. However, with a low Federal Funds Rate, and the potential for inflation to decline for any

The purchasing power of customers is going to reduce, and Fed tries to prevent swelling from running. The retreat of wholesale expenses gives the Fed more breathing space to keep investment rates at record lows. Numerous economists gauge that the Fed will begin bringing rates up in June. Different patterns are likewise keeping costs low. Normal compensation has climbed only 2.1 percent beneath the 3.5 to 4 percent that is average in a sound economy. That makes it harder for purchasers