Macroeconomic Situation - Essay Example

What is the "current macroeconomic situation" in the U.S.? National Bureau of Economic Research (NBER) s that US economy came out of recession and in the second quarter of 2010, American economy expanded 1.6 percent however, any further downturn in the US economy would result in a new recession and not a continuation of recession 2007-2009 (The Economic Times, 2010). In September unemployment rate remained unchanged at 9.6 percent (Bureau of Labour Statistics, 2010). The expansion figures and unchanged unemployment rate gives an optimistic view about US current macroeconomic situation.

On the other hand, to make up for lowering tax revenues, US local government fired various workers and educators and payrolls were lowered which hampered consumer spending (Homan, 2010). Moreover, the value of dollar is declining against many other currencies and it is expected that Fed will pursue a new round of large-scale asset purchase. Felsenthal and Costa (2010) argues that decline in the value of Dollar is the result of Fed’s easy money policy because investors moved out of dollars and invested in other currencies to achieve higher returns.

They also highlighted that Federal Open Market Committee (2010) has decided to employ its own policy tools because FOMC seems to have an explicit easing bias. The inflation expectations in US are increasing and investors are showing their concerns that Federal Reserve’s efforts to revive the economy will further drive up the inflation and it is expected that Fed is going to use tools like quantitative easing (Mackenzie, 2010). Developed nations usually use advanced tools of monetary policy like quantitative easing which is an asset purchase program (Rashid, 2010).

Therefore, if expansionary policy is pursed then it is expected that tax cut would increase the household consumer spending and government spending would stimulate the economy by improving the demand and supply sides, thereby, helping the US economy to spur its recovery. What should the U.S. Congress and the Federal Reserve do about it?In order to recover from recession, U.S. Congress has two fiscal policy tools including tax policy and government spending. Carreira (2010) argues that debates in Washington on fiscal policy have been always over the mix of government spending and tax cuts.

He argues that US Congress should adopt the Keynes model and to stimulate the US economy, government spending should increase and taxes should be cut. Treasury Secretary, Geithner’s recommendation to US Congress to extend expiring tax cuts for the middle class (Smith, 2010) is another good recommendation. Actually by bringing back Americans to work will create more opportunities and help the government to extend economic growth. Imprving the value of dollar against other currencies like Japense yen, Chinese renminbi is also important.

On the other hand, US Congress considers renminbi appreciation a major stimulus to create jobs in the US as evident from the statement of Congressman Ryan (Lijuan, 2010). Bad politicial decisions appear to be one of the major reasons who could make the current macroeconomic situation of US more worse therefore, US should not embrace renminbi appreciation as a way to spur its own economic growth. On the other hand, Fed is continuously monitoring two data points including the inflation and employment (Lagorce, 2010).

Mauldin (2010) argues that Fed has tried all less-subtle instruments of monetary policy but lower rates are not the solution to create jobs and control inflation. He presented the opinion that Fed has left with the only option of massive quantitative easing and the monetization of the debt of government and last meeting of FOMC also seems to embrace it. Bibliography Bureau of Labour Statistics. (2010, October 8). Employment Situation Summary. Retrieved October 9, 2010, from http://www.bls.gov/news.

release/empsit.nr0.htmCarreira, R. (2010, September 15). Tax cuts versus government spending. Retrieved October 9, 2010, from http://www.willcoxrangenews.com/articles/2010/09/15/opinion/editorials/edit2.txtCosta, M. F. (2010, September 21). Fed lays groundwork for possible further stimulus. Retrieved October 9, 2010, from http://news.yahoo.com/s/nm/20100921/bs_nm/us_usa_fedHoman, T. R. (2010, October 9). Job Losses in U.S. Exceed Forecasts After Local Governments Fire Teachers. Retrieved October 9, 2010, from http://www.bloomberg.com/news/2010-10-09/job-losses-in-u-s-exceed-forecasts-after-local-governments-fire-teachers.

htmlLagorce, A. (2010, October 9). Inflation data key on both sides of Atlantic. Retrieved October 9, 2010, from http://www.marketwatch.com/story/carrefour-burberry-us-inflation-in-focus-2010-10-09?reflink=MW_news_stmpLijuan, Z. (2010, September 30). US trade politics remain the problem . Retrieved October 9, 2010, from http://www.china.org.cn/opinion/2010-09/30/content_21044304.htmMackenzie, M. (2010, October 7). Investors price in US inflation fears. Retrieved October 10, 2010, from http://www.ft.com/cms/s/0/df1ab5ea-d252-11df-8fbe-00144feabdc0.

htmlMauldin, J. (2010, October 9). The Ride of the Keynesian Cowboys. Retrieved October 10, 2010, from http://www.safehaven.com/article/18507/the-ride-of-the-keynesian-cowboysRashid, M. (2010, October 7). Monetary policy in an emerging economy. Retrieved October 8, 2010, from The Daily Star: http://www.thedailystar.net/newDesign/news-details.php?nid=157412Smith, D. (2010, September 13). Geithner says U.S. economic recovery not fast enough. Retrieved October 10, 2010, from Reuters: http://www.reuters.

com/article/idUSTRE6875KG20100913The Economic Times. (2010, September 21). US came out of recession in June 2009, says NBER. Retrieved October 9, 2010, from http://economictimes.indiatimes.com/news/international-business/US-came-out-of-recession-in-June-2009-says-NBER/articleshow/6594546.cms