Direction of U.S. Monetary Policy for the Year Ahead (Case Study Sample)

Direction of U.S. Monetary Policy for the Year Ahead
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Introduction:
The US economy has undergone a major recovery since it early 2000 when the economy had receded to a worrying level. During the great recession period the rate of unemployment had gone up to ten-percent and this has improved significantly to about 4% this year. The goal of the Federal Open Market Committee's (FOMC) is to ensure that unemployment is reduced, as prices of commodities also remain stable. At the rate of 4%, unemployment is almost in compliance with the aims and objectives of the FOMC. Unemployment, together with inflation and Gross Domestic Product (GDP), are some of the core indicators of the America’s economic indicators that require very close redress if the monetary policy is to be sustained.
A summary of the key Indicators
As already mentioned, inflation, unemployment, and GDP are the core indicators that require addressing. To start with, even though labor market has received a significant boost in the recent past, full employment has not been achieved as expected by the FOMC CITATION Fer14 \l 2057 (Laurent & Sestieri, 2014). A number of people who have reached the retirement age can still seek and get employment even in labor markets that are very strong. And in order to make a valid conclusion on the number of the unemployed, those in the working age bracket should report that they have been looking for jobs in the past one month or so. Another group of people like the teenagers in learning institutions, retirees, those taking care of children at homes, would decide not to look for jobs in very competitive labor markets CITATION Mic14 \l 2057 (Clements, 2014). Lastly, there are people who work as part-timers, but would wish to get full-time employment which they are unable to come by. These are some of the factors that greatly influence the rate of unemployment, but are assumed in making such considerations CITATION Rei15 \l 2057 (Dave, Wascher, & Wilcox, 2015).
The second indicator for the US economy is the GDP. From the inflation point of view, the real GDP has improved on a moderate level CITATION Fer14 \l 2057 (Laurent & Sestieri, 2014). The annual growth rate of the GDP is estimated to be about 2.75 %. History has it that the rate is now equivalent to the average of the past 5 years, and that is not a mean improvement. It is believed that the annual growth is hindered by the net exports which are weak. Indeed, net export has pulled back the growth at an average rate of 0.5 % for the last 3 quarters. The consequence of this is the slow foreign economic growth, appreciation of the US dollar, and increased damping of the US exports. In contrast, the components of domestic final purchases (PDFP) like investments in business and residential increases at a relatively faster rate of up to three-percent. However, the rate at which real GDP is moving, economists believe, is sufficient to foster the achievement of the goal of eliminating unemployment in the US.
With regards to inflation in the US, there is an evidence of an unstable consumer price inflation, a move that is mainly, catalyzed by the fluctuations in the price of oil and other important goods CITATION Fer14 \l 2057 (Laurent & Sestieri, 2014). In the beginning of the year 2011 for instance, the rate of inflation increased significantly due to increases in the prices of gasoline and other important commodities and services; later in the year when the price of crude oil, declined inflation also responded in the same manner. When inflation is viewed from the price perspective, the average annual rate for the last two years stands at about 1.5% CITATION Rei15 \l 2057 (Dave, Wascher, & Wilcox, 2015). When compared to the rates before the great recession, this seems to be lower though below the FOMC’s goal.
State of the US Economy in terms of Business Cycle
In economics, business cycle refers to the economic expansion and contraction. During expansion, price inflation and economic growth are both experienced simultaneously, while at the time of contraction, employment and growth of the economy depreciates CITATION Rei15 \l 2057 (Dave, Wascher, & Wilcox, 2015). The graphical representation of the business cycle shows that during the period of decline, the economy performance is lowest, and is represented by the trough while on the other hand, expansion would be shown by the crests or peaks. The graphs below shows the business cycle (in terms of the economic indicators: GDP, unemployment, and inflation respectively) of US economy for the last decade CITATION Mic14 \l 2057 (Clements, 2014)
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