The State of the Economy and the Direction of Monetary Policy (Coursework Sample)

The State of the Economy and the Direction of Monetary Policy
The COVID 19 pandemic caused an economic activity contradiction due to the mandatory restrictions that the government set in place, such as lockdown measures and the voluntary behavioral changes by the businesses and households. As such, the GDP dropped by 10% over the first two fiscal quarters of 2020. In addition, the unemployment rate increased to about 14.8% (Board of Governors of the Federal Reserve System, 2021). It caused a GDP drop of about 2.5 in 2020, and the payroll employment in January 20221 stood at nearly ten million jobs below the pre-pandemic levels. The relaxation of the mandatory restrictions has caused an increase in the expenditure on many services.
Source: (Board of Governors of the Federal Reserve System, 2021)
Source: (Board of Governors of the Federal Reserve System, 2021)
Source: (Board of Governors of the Federal Reserve System, 2021)
A partial recovery of the labor market from the collapse induced by the pandemic has been recorded. Relaxation of the lockdown measures and a reduction in the reported COVID-19 cases resulted in a rapid rebound of the employment rates as the unemployment rates went down. The nonfarm payroll employment rose from about 130 million jobs to about 143 million, and the civilian employment rates also dropped from about 15% to 6%. The LFPR, labor force participation rate, had dropped drastically during the onset of the COVID-19 pandemic as the civilian who lost their employment during this period weren't actively searching for new jobs. However, recovery has been observed, but it still stands at 2% below the pre-pandemic level (Board of Governors of the Federal Reserve System, 2021). This weaker LFPR can be attributed to early retirements triggered by the pandemic, lack of jobs, closure of schools & virtual learning impacts on the parents' ability to seek employment.
The employment-to-population ratio stood at 3.6% below the pre-pandemic level. Most of the people who lost their jobs were lower-wage workers, Latinos, and African Americans. Despite the labor market weaknesses caused by the pandemic, the 2020 wage growth remained essentially unchanged compared to 2019. Total hourly compensation rose to 2.6% between January and December 2020, almost at par with the previous year. The wage growth rose by 3.5% in 2019 and 2020, showing how the economy is resilient to the effects of the pandemic. In addition, the price inflation has not gone up despite rebounding after the easing of COVID restrictions. The expectations are that the long-tun inflation has remained relatively stable despite the pandemic. The household consumption rose in the spring and capped at a 2.6% rate lower than the pre-pandemic levels by the end of the year 2020.
The exports numbers remain relatively lower compared to the pre-pandemic period as foreign economies were also weakened by the pandemic (Board of Governors of the Federal Reserve System, 2021). However, the imports have gained ground since the pandemic as goods imports have primarily offset the decline in service imports. The drop and subsequent rise of the GDP showed the impact of the unprecedented monetary and fiscal support made by the government to reduce the impact of the pandemic. However, the weakness of consumption of services results from the effects felt in the service industry due to the pandemic. The aggregate household wealth is high due to the soaring house prices and equities, primarily after the arrival of vaccines for the coronavirus, and fiscal stimulus optimism. The Federal Reserve’s bank rates remain between 0 to 0.25 percent while the long-term treasury bond yields have gone up.