U.S.

Macroeconomics: The Current Situation

U.S. Macroeconomics: The Current Situation

ECON 312

Table of Content
Introduction.............page 2
Unemployment....page 2
Inflation.......page 3
Monetary Policiespage 3
Fiscal Policies..................... page 4
Conclusion...page 4
References.................. page 6

U.S. Macroeconomics: The Current Situation

U.S. Macroeconomics: The Current Situation

Introduction
There are four main areas of U.S. macroeconomics that point to the current state of this
great countrys economy. These four areas unemployment, inflation, monetary policy, and fiscal
policy give the indication that things continue to trend upward for our economy. Digging deeper,
however, there are signs that we may be living on borrowed time.
Unemployment
On the surface, unemployment in the United States isnt much of an issue. According the
Bureau of Labor Statistics, unemployment is down to 5.5% down from 7.5% in December of
2013 ("U.S. Bureau of Labor Statistics", 2015). While this is certainly a positive trend, lets look
at this in a different light. It is true that people are employed, certainly a good thing, but they are
making lower salaries, working two part-time jobs, or going back to school because they
couldnt find a job. Doing this effectively eliminates them from being included in the
unemployment statistics. Those who make the lower salaries, work the dual part-time jobs, or go
back to school because they exhausted avenues of employment are included in a statistic known
as Underemployment. The underemployment rate as of March of 2015, according to statista.com,
was 15.5% ("U.S. underemployment rate - March 2015 | Statistic", 2015). Couple that with the
unemployment rate of 5.5% and that is a rather staggering number at 21%. Are we as a country
really doing better if people are employed but not at the same levels they were 10 years ago?
While this is a complex question on the surface, the answer is no. However, since inflation has
been zero, the negative impact isnt nearly as severe, perhaps giving Americans a false sense of
security.

U.S. Macroeconomics: The Current Situation

Inflation
As I eluded to above, the inflation rate has basically been zero for as long as the Federal
Reserve has set interest rates at close to zero ("U.S. Bureau of Labor Statistics", February, 2015).
A bizarre phenomenon, this is the first time the economy has shown that when the interest rates
are zero and employment is on the rise, yet prices remain flat. Typically the Federal Reserve
fears that if interest rates remain too low for too long, prices will increase and cause severe
inflation. This was evidenced in the 1980s when Federal Reserve Chairman, Paul Volcker had
enabled this to happen to help curb oil crisis. So far, nothing of this sort has happened.
Interestingly, as more jobs are being created, more people are back to work, theoretically, people
are spending more money thus prices should increase, yet they are not. This has forced the
Federal Reserve to keep interest rates low, thus curbing inflation. Since these combinations of
bizarre phenomena havent caused inflation, the Federal Reserve fears that it could at any
moment. Again, this points to the American public feeling good, but on shaky circumstances.
Monetary Policies
It would seem that the Federal Reserve has exhausted all of the tools in their toolbox. In
essence, they really only have two avenues in which they can influence the money supply:
Interest Rates and buying/selling bonds. They have already tinkered with both! Even a period of
quantitative easing, an unconvential monetary policy in which a central bank purchases
government securities or other securities from the market in order to lower interest rates and
increase the money supply ("Quantitative Easing Definition | Investopedia", 2015), has come
and gone. There now seems to be much speculation, and fear for that matter, that Janet Yellen
and the FOMC will raise interest rates in June of 2015. This is quite a controversial subject, the

U.S. Macroeconomics: The Current Situation

potential increase. There are many arguments in the economic community on both sides of the
fence.
Fiscal Policy
There are two big ways fiscal policy is used: spending government money to create jobs,
often in the form of major road improvements, military spending, welfare spending, etc. and to
decrease taxes. Both of these devices are controlled by the government. They use these policies
to either put more money in peoples pockets, by reducing taxes, or by creating new jobs.
The other issue, one which puts fears of a potential global economic crash, is the increase
in value of the U.S. dollar. For the past decade, the dollar has been weak. This has led to
increases in tourism and has benefited our exports. As the value of the dollar increases, potential
problems loom. First, it will be more expensive to travel here curbing the tourism we have
enjoyed. Secondly, it will be more expensive to purchase our goods. These both affect the
economy negatively. The final potential problem, the biggest of the three, is that countries that
owe money borrowed back to the United States will pay that debt back in a time when the U.S.
dollar is worth far more than it was when they borrowed. This spells major trouble for the global
economy (Diedrich, 2014).
Conclusion
We are in a very unique and unprecedented time in the United States. Inflation is low.
Interest rates are low. Unemployment is low. The scary part is that, as it usually does, something
will change and no one seems to know what that is. The points made above are obviously
concerning from an economic standpoint, but there are other potential unknowns that could cause
issues. 2016 will usher in a new president. The economy always reacts to elections. Typically,
things improve with the economy, for various reasons. Some of these reasons being the increase

U.S. Macroeconomics: The Current Situation

in money being spent on advertisements and jobs being created for campaigning. Couple that
with a potential shift in both monetary and fiscal policy, and there are a lot of unknowns racing
toward us as a country in an economic sense. One thing I have learned over the years, however:
America as a country and an economy will endure. It always has.

U.S. Macroeconomics: The Current Situation

References
Diedrich, S. (2014, October 14). The Dollar Rally: Where Will The Buck Stop? Retrieved April
12, 2015, from http://www.forbes.com/sites/greatspeculations/2014/10/14/the-dollar-rallywhere-will-the-buck-stop/
Quantitative Easing Definition | Investopedia. (2009, April 12). Retrieved April 12, 2015, from
http://www.investopedia.com/terms/q/quantitative-easing.asp
U.S. Bureau of Labor Statistics. (2015, February). Retrieved April 12, 2015, from
http://www.bls.gov/web/empsit/.pdf
U.S. Bureau of Labor Statistics. (2015, April 3). Retrieved April 12, 2015, from
http://www.bls.gov/web/empsit/ceshighlights.pdf
U.S. Underemployment Rate - March 2015 | Statistic. (2015, March 1). Retrieved April 12, 2015,
from http://www.statista.com/statistics/205240/us-underemployment-rate/