Government and Federal Reserve

Over the last three last years, the Government and Federal Reserve have not been very successful in running the economy of the United States. From the early 2000, the recession has hit the economy badly and since then, the economy has been declining in terms of growth, employment, balance of payment and prices. Though the US Government and the Federal Reserve have been making efforts to control the situation, yet very remarkable improvements have not been observed. Prices The home and oil prices have dropped considerably during this time period.

The US home prices dipped at a record rate in the month of January. The home prices have dropped all over the nation about 30% of their value from their highest point in the year 2006 (Costa 2009). The prices of oil had fallen steeply after it was shown in a U. S. government report that there was a rise in the crude supplies to a 15-year high (Oil Prices Fall as US Crude Supplies Hit 15- Year High 2009). The prices of other consumer products have been rising and the overall inflation has also been increasing.

Economic growth The economic growth during 2006 to 2009 has also declined. Except for the losses of jobs and the increasing unemployment, the economy of the US has many other challenges to deal with. The flat wage rates, heavy family debt and lack of health insurance and pension are the key concerns that are resulting in a low and slow economic growth. The crisis of the housing and mortgage industry has a strong grip over the economy and its growth prospects for the future.

Inflation is still on the rise and the people in America have been paying more for attaining the basic necessities of life like medical care, food, tuition fees and fuel. Source: The US Bureau of economic analysis Note: The real GDP growth is measured at seasonally adjusted annual rates. Unemployment The unemployment in the United States has increased from the time when the economy has entered the phase of recession. From the table below, it is clear that the unemployment from May 2006 to March 2009 has increased significantly.

The rate of unemployment has been moving up in February, 2009; for adult men 8. 1%, adult women 6. 7%, blacks 13. 4%, whites 7. 3% and Hispanics 10. 9%. There was a little difference in the rate of unemployment for the teenager, which was 21. 6% (Economic News Release – Employment Situation Summary 2009). Among the unemployed people, the number of people who lost their jobs and those who completed temporary jobs also raised from 716,000 to 770,000 in the month of February. This figure has increased by 3. 8 million during the last one year.

The long-term unemployment or unemployment for 27 weeks or more grew by 270,000 to 2. 9 million during this month. If compared with the previous year, the number of long-term unemployed raised by 1. 6 million (Economic News Release – Employment Situation Summary 2009). Balance of payment The economy of the United States is continuously witnessing a rising trend in international deficit of the goods and services, i. e. export minus import. This deficit was more than $57 billion in the month of February 2007 and this reached to a level of $63. 9 billion in the month of March 2007. However, this has again decreased up to $58. 5 billion in April 2007 (American Economy Recent Trends).

Monetary and Fiscal Policies The monetary policy stance was eased out in the first part of year 2008 and thereafter, the Federal Open Market Committee decreased the target federal funds rate further in the later half, finally bringing it between 0 and ? %. The Federal Reserve initiated numerous other actions for improving the liquidity and enhancing the market functioning.

Due to a few of these measures, there was a significant increase in the size of the balance sheet of the Fed and in addition to it, the FOMC declared the policy of moving ahead, which would support the working of the financial markets and encourage the economy by way of open market operations and other activities that would result in maintaining the balance sheet of the Fed at a high level (Part 3: Monetary Policy in 2008 and Early 2009 2009). The credit crunch spread across the entire economy and that too at a fast pace.

As a result, the Fed adopted an expansionary policy to improve the flow of cash in the market and ease out the situation. The Government followed a relatively liberal fiscal policy. The US has a very heavy level of debt and thus, it is all the more important to carefully plan its fiscal policy. The Government has been trying to improve the tax revenues because there is a decline in the GNP (Gross National Product). It has also been paying unemployment compensation in this time of recession because more people are becoming unemployed.