Federal Reserve and the Performance of the US Economy - Article Example

The report was suggesting that the national economic activities were expanding at a modest rate with the economy characterized by high consumer spending habits, expansion of the manufacturing industry, and growth in the tourism industry among other sectors. Demand for non-financial services was also reported to have strengthened including transportation and professional services (Federal Reserve Bank, 2013).

By the beginning of March 2012, the US economy was reported to continue flourishing at a modest to moderate pace, and economic activities rose at a faster rate in various states. Most states also recorded an economic improvement in various sectors such as manufacturing, agriculture, real estate, and construction industry, banking and services as well as tourism and hospitality industry. The hiring rate was also reported to have increased significantly across several districts. Consumer expenditure was reported to be positive in various states examined. Positive findings were also reported by a similar study conducted in mid-April same year and at the beginning of June (Federal Reserve Bank, 2013).

However, despite the positive reports about the performance of the US economy, the agriculture sector was reported to have been affected by the continuing drought conditions in various districts like Atlanta, Minneapolis, Kansas City, and Dallas. This affected the planting exercise of corn and wheat in areas like Chicago, Minneapolis, and Minneapolis. Uncertainty about future demands was another key factor that tremendously affected the country’s economy. The mid-April report indicated that some employers preferred to hire employees part-time or temporarily for fear of uncertainties in the future. Such cases were reported in Richmond, Atlanta Districts Boston, Cleveland, Atlanta, Chicago, Kansas City, and Dallas Districts and many employers termed it as a strategy for containing production costs. Therefore, unemployment and drought can be termed as some of the issues that were affecting the US economy.

Inflation was another main issue that threatened the country’s economy. This led to demand for salary and wage increments since employees needed more money to meet the high cost of living attributed to inflation. Such cases were reported in several states like Chicago, Dallas, and San with other states like Philadelphia experiencing pressure for medical benefits. Though the inflation experienced was a bit mild, various sectors particularly transport and service industries were negatively affected to the extent that transportation costs (land and air) went up in Minneapolis and Dallas. According to the report, higher transportation costs in Atlanta were passed through to consumers thus continuing to make their lives difficult. The effect of inflation was also felt in the manufacturing industry as the cost of raw materials continued to increase.

The US economy was also faced with the issue of housing (Federal Reserve Bank, 2013). According to the June 6 report, loans for mortgages continued to increase as had been recorded in the past seasons. Though there has not been any explanation for this increase, I believe the continuous demand growth for houses and real estate was triggered by the fact that properties were appreciating rapidly. A strong economy depends on the stable housing market that on the other hand depends on the preponderance of home loans being low risk.

Nonetheless, the government’s control of housing finance promotes risky lending; nearly one-half of home loans guaranteed recently by government agencies - FHA, Fannie Mae, or Freddie Mac - had down payments of 5 percent or less. Subsequently, even a small reduction in home values would leave such borrowers underwater while as Fed’s policy of keeping interest rates at historically low levels is driving up house prices faster than rents and incomes. This makes it difficult for first-time home buyers to purchase a home and creates the risk of another housing bubble (Rosenberg, 2012). Read More