Introduction
The paper is going to outline the current macroeconomic situation experienced in the United States by focusing on such macroeconomic aspects as recession, inflation and Unemployment. Consequently, as far as the current macroeconomic situation experienced in the United States is concerned, it is important to begin by noting that the economic recoveries that were typical to U.S. following the post-war recessions were greatly enhanced by the synergy between rising consumption and housing investment boom. However, considering the fact that the great recession did come to U.S. as an ordinary downturn, the economic recovery needed not to be expected to occur in an ordinary manner (Burriel et al., 2010).
The economic recovery in this case, was for instance depending on the net imports more than it depended on consumption and investment during the post World War II era. On the other hand, during the late 2010 and early 2011, the statistics indicated that depending on net exports is a risky proposition. The reason for this is that net imports are so volatile. Their volatility means that the economic growth they will stimulate would also be volatile. In the last quarter of the year 2010 for instance, the contribution of the net imports to the economic growth was more than 3%. However, the net imports contributed negatively in the first quarter of the year 2011. The U.S. economy is therefore under the challenge of maintaining export-led growth like Germany and Japan. The reason for this is that a net importer is always therefore for every country which is a net exporter (Burriel et al., 2010).
Discussion
Currently, the U.S. macroeconomic policy is exerting pressure on rebalancing, mainly through quantitative easing. In first quarter of the year 2010, the headwinds of appreciating Yen and Euro were hitting Japan and European Union exports. The recoveries of these two economies were also being complicated further by the tragic natural disaster and sovereign debt crisis respectively. On the other hand, the commitment of the monetary policy in the United States is that of maintaining low interest rates. The headline inflation in the U.S. has been rising with the rise in commodity prices. However, there has been no translation of the inflationary pressure into increasing core wages and inflation (Burriel et al., 2010).
On the other hand, the characteristic of U.S. fiscal policy is that the federal spending experiences a slowdown due to a combination of a fiscal stimulus, which is running out and worsening fiscal difficulties experienced by state governments. Therefore, it may appear a good idea to cut the government spending when the deficits are large. However, this idea may also be counterproductive. Therefore, the only most reliable and the quickest way of reducing deficit is that of increasing the economic growth. The reason for doing this is that budget deficit bears an important cyclical component. As the economy will be growing, there will be a decline in government spending on safety net as well as a rise in the tax revenues. At the same time, the growth of the private sectors will give chance for the implementation of the reforms that would ensure a long-run attainment of fiscal sustainability by the federal government. On the other hand, fiscal situation may be complicated by premature fiscal austerity. This is because the economic recovery will be undermined by contractionary impact (Kilian & Vega, 2011).
In addition, as far as the U.S. current macroeconomic situation is concerned, it is important to note that large advanced economies experience an economic recovery that appear to be at a standoff. This is because the time of unlimited and easy exports is gone, as the domestic sources of economic growth –investment and consumption-are sluggish. The economic recovery in U.S. cannot be said to be fragile. However, chances are high that this economic recovery will remain slow until acceleration is seen in domestic investment.
Housing for instance will require a start of approximately one million. Due to the burdens of sagging housing market and high employment, there was a decline in the U.S. economic growth to a yearly rate of 1.8% in first quarter of 2011. This decline had followed an export-fueled economic growth of 3.1% realized in the last quarter of 2010. The wage and inflation growth is expected to remain low. As inflationary pressures build up in the emerging market economies while monetary tightening occurs in the European Union, the U.S. Dollar will continue depreciating. Even following an improvement in job market, unemployment level will stay above 8% (Kilian & Vega, 2011).
Appropriate monetary and fiscal policies
Appropriate monetary policies
In order for the Federal government to respond to the current financial crisis it will be appropriate if it provides liquidity by employing such monetary policies as the use of alternative facilities, injection of capital into its financial system, which is fragile, quantitative easing and reduction of interest rates. It can also employ such monetary policies as helping the leading financial institutions in restoring their credibility through stress tests. These policies will help in stimulating the economy and ending recession and crisis (Kilian & Vega, 2011).
Appropriate fiscal policies
The mitigation of financial unemployment burdens will come through the maintenance of extended unemployment compensation. The use of stimulus policies that are short-term and temporary for boosting jobs and economy should be shortened. The replacement to this curtailing should come from investment spending whose goals are those of encouraging incentive-based programs and innovation that support permanent job creation and increasing productive capacity (Burriel et al., 2010).
Conclusion
In conclusion, it is important to summarize that there has been a significant deviation in both U.S. fiscal and monetary policies in terms of their long-run sustainable objectives and trends. With slow economic growth and high unemployment, the debate of macroeconomic policy makers is on how to attain long-run economic sustainability. This has called for the need for adopting appropriate fiscal and monetary policies (Kilian & Vega, 2011).
References
Burriel, P., De Castro, F., Garrote, D., Gordo, E., Paredes, J. and Pérez, J. J. (2010), Fiscal Policy
Shocks in the Euro Area and the US: An Empirical Assessment. Fiscal Studies, 31: 251–
285. doi: 10.1111/j.1475-5890.2010.00114.x
Kilian, L. & Vega, C. (2011).Do Energy Prices Respond to U.S. Macroeconomic News? A Test
of the Hypothesis of Predetermined Energy Prices. The Review of Economics and
Statistics. Vol. 93 (2) Pgs 660-671 (doi:10.1162/REST_a_00086)
