Current Macroeconomic Situation in the United States - Essay Example

The housing market shows no sign of recovery. The real GDP augmented at a yearly rate of 1.5% in the second quarter of 2012. This was a decline from the 2% growth rate recorded in the first quarter (Censky, 2012).

The unemployment rate is the ratio of jobless individuals to the labor force. The economy has been experiencing employment growth over the past twenty-two months. In July 2012, employment increased by 163, 000 jobs. The rate of unemployment remained unchanged at 8.3% as compared to previous months. Since the commencement of 2012, employment expansion has averaged 151, 000 jobs per month. The inflation rate is the general increase in price levels of services and goods. In June 2012, the rate of inflation in the U.S. was recorded at 1.7%. In June 2012, the Consumer Price Index for all metropolitan consumers was unaffected on a seasonally regulated basis. Over the last year, all commodities indexes were augmented by 1.7% before seasonal alteration (Censky, 2012).

Expansionary fiscal policy is described as an augment in government spending and/or a cut in taxes, which causes the budget surplus to reduce or the budget shortfall to increase (Boyes & Melvin, 2012). According to International Monetary Fund (2012), in 2009, the United States administration introduced an expansionary fiscal policy valued at $787 billion. This expansionary fiscal policy is referred to as the economic stimulus package, which is a combination of tax reductions and increases in government expenditures.

The objectives of the policy were to offer consumer relief, create jobs, increase consumer expenditure, and increase production. This fiscal policy played a significant role in forestalling a deeper economic recession. This expansionary fiscal policy has resulted in economic growth, although at a very slow rate (International Monetary Fund, 2012). However, this expansionary fiscal policy is proving to be unsustainable and has increased the public debt. Since the adoption of this policy, the national debt has increased over the months. In July 2012, the national debt was recorded at $15.9 trillion.

The present monetary policy in the U.S. is described as ultra-loose monetary policy. Through the Federal Reserve Bank, the Federal Open Market Committee recommended the adoption of this policy to achieve economic growth. The policy strives to sustain the federal funds rate at exceptionally low levels up to late 2014. The objective is to keep the rate of interest for federal funds at near zero; currently, the rate is within the range of zero to 0.25%. This policy has led to an augment in the values of government bonds and a reduction in interest rates (Labonte, 2012).

According to Labonte (2012), low-interest rates have led to an augment in capital investment. In turn, this has led to an augment in production capacity, thus spurring the growth of the economy. In June 2012, the Federal Open Market Committee recommended the extension of the Operation Twist Program through the end of the year. This extension will add an extra $267 billion to the program through which the Federal Reserve Bank sells some of its intermediate-term bonds to purchase long-term bonds. Theoretically, this action is expected to reduce the rate of interest for long-term loans. The U.S. economy should continue using expansionary monetary and fiscal policies with appropriate adjustments.