Documente Academic
Documente Profesional
Documente Cultură
Table of Content
Introduction.............page 2
Unemployment....page 2
Inflation.......page 3
Monetary Policiespage 3
Fiscal Policies..................... page 4
Conclusion...page 4
References.................. page 6
Inflation
As I eluded to above, the inflation rate has basically been zero for as long as the Federal
Reserve has set interest rates at close to zero ("U.S. Bureau of Labor Statistics", February, 2015).
A bizarre phenomenon, this is the first time the economy has shown that when the interest rates
are zero and employment is on the rise, yet prices remain flat. Typically the Federal Reserve
fears that if interest rates remain too low for too long, prices will increase and cause severe
inflation. This was evidenced in the 1980s when Federal Reserve Chairman, Paul Volcker had
enabled this to happen to help curb oil crisis. So far, nothing of this sort has happened.
Interestingly, as more jobs are being created, more people are back to work, theoretically, people
are spending more money thus prices should increase, yet they are not. This has forced the
Federal Reserve to keep interest rates low, thus curbing inflation. Since these combinations of
bizarre phenomena havent caused inflation, the Federal Reserve fears that it could at any
moment. Again, this points to the American public feeling good, but on shaky circumstances.
Monetary Policies
It would seem that the Federal Reserve has exhausted all of the tools in their toolbox. In
essence, they really only have two avenues in which they can influence the money supply:
Interest Rates and buying/selling bonds. They have already tinkered with both! Even a period of
quantitative easing, an unconvential monetary policy in which a central bank purchases
government securities or other securities from the market in order to lower interest rates and
increase the money supply ("Quantitative Easing Definition | Investopedia", 2015), has come
and gone. There now seems to be much speculation, and fear for that matter, that Janet Yellen
and the FOMC will raise interest rates in June of 2015. This is quite a controversial subject, the
potential increase. There are many arguments in the economic community on both sides of the
fence.
Fiscal Policy
There are two big ways fiscal policy is used: spending government money to create jobs,
often in the form of major road improvements, military spending, welfare spending, etc. and to
decrease taxes. Both of these devices are controlled by the government. They use these policies
to either put more money in peoples pockets, by reducing taxes, or by creating new jobs.
The other issue, one which puts fears of a potential global economic crash, is the increase
in value of the U.S. dollar. For the past decade, the dollar has been weak. This has led to
increases in tourism and has benefited our exports. As the value of the dollar increases, potential
problems loom. First, it will be more expensive to travel here curbing the tourism we have
enjoyed. Secondly, it will be more expensive to purchase our goods. These both affect the
economy negatively. The final potential problem, the biggest of the three, is that countries that
owe money borrowed back to the United States will pay that debt back in a time when the U.S.
dollar is worth far more than it was when they borrowed. This spells major trouble for the global
economy (Diedrich, 2014).
Conclusion
We are in a very unique and unprecedented time in the United States. Inflation is low.
Interest rates are low. Unemployment is low. The scary part is that, as it usually does, something
will change and no one seems to know what that is. The points made above are obviously
concerning from an economic standpoint, but there are other potential unknowns that could cause
issues. 2016 will usher in a new president. The economy always reacts to elections. Typically,
things improve with the economy, for various reasons. Some of these reasons being the increase
in money being spent on advertisements and jobs being created for campaigning. Couple that
with a potential shift in both monetary and fiscal policy, and there are a lot of unknowns racing
toward us as a country in an economic sense. One thing I have learned over the years, however:
America as a country and an economy will endure. It always has.
References
Diedrich, S. (2014, October 14). The Dollar Rally: Where Will The Buck Stop? Retrieved April
12, 2015, from http://www.forbes.com/sites/greatspeculations/2014/10/14/the-dollar-rallywhere-will-the-buck-stop/
Quantitative Easing Definition | Investopedia. (2009, April 12). Retrieved April 12, 2015, from
http://www.investopedia.com/terms/q/quantitative-easing.asp
U.S. Bureau of Labor Statistics. (2015, February). Retrieved April 12, 2015, from
http://www.bls.gov/web/empsit/.pdf
U.S. Bureau of Labor Statistics. (2015, April 3). Retrieved April 12, 2015, from
http://www.bls.gov/web/empsit/ceshighlights.pdf
U.S. Underemployment Rate - March 2015 | Statistic. (2015, March 1). Retrieved April 12, 2015,
from http://www.statista.com/statistics/205240/us-underemployment-rate/