The current macroeconomic situation in the United States is comprised of a longstanding high rate of unemployment, a slowly climbing GDP, a relatively steady rate of inflation, and an unsteady but generally falling exchange rate with the Euro and the yen. Most of these measures are put into a context of comparison with the previous eight years, as 2007-2008 marked the most recent recession and regarding the macroeconomic climate of the United States, the years since the recession have been a reaction to and fallout from that recession.
The current unemployment situation in the United States is slowly improving quarter by quarter, but ultimately, over six million people who were employed in 2009 are not employed in 2015 (Chafuen, 2015). The current unemployment rate stands at 5.5 percent as of the end of May 2015 (Employment, 2015). As seen in the cart below (Jobs, 2015, n.p.), there has been a slow but relatively steady overall downward trend in unemployment in the past year. However, while the trend is downward, what this chart does not indicate is the overall high level of unemployment. Coming out the recent recession, where unemployment topped 11 percent, it may seem a vast improvement over those drastically high unemployment rates and it is, but 5.5 percent unemployment does not necessarily improve economic growth, and if a drop from 11 percent to 5.5 percent is looked upon favorably by the Feds, they could, in reaction to the unemployment rate, decide to increase the interest rate, which would spell trouble for inflation and GDP growth.
Inflation in the United States is currently steady to slightly dropping, and GDP growth is occurring at a rate of 2.70 percent and predicted to remain steady at least until 2020 (GDP, 2015). If the Feds decline to change the interest rate, it is quite likely that these GDP numbers will play out.
An appropriate fiscal policy for this time would be to stop focusing exclusively on current macroeconomic conditions such as the decreasing unemployment rate and steady inflation and being to focus on the future path of the US economy. Fiscal policy should address the outstanding debt issue, the problems with future funding of social programs such as Social Security and Medicare, and looking at investment options for the future.
Expansionary fiscal tools such as allowing the government to stimulate the economy by making more purchases and legislating a decrease in personal income taxes and other taxes, while designed to help rebuild the economy after a recessions such as the one the country just experienced would only lead to further national debt. It would undoubtedly increase the GDP, but at what cost to the national debt and the taxpayers and future taxpayers? On the other hand, easy money policy tools such as lowering interest rates could also force an influx of money into the economy. This is unlikely to happen, however, after the housing crisis during the recent recession.
Monetary policy, as set out by the Federal Open Market Committee (FOMC), is charged with the responsibility of assessing the country’s economy and the policies that govern the economy. This committee has the authority to adjust the reserve requirements, the interest rate banks pay, and the purchase of securities. A favorable monetary policy for the current condition of the macroeconomic situation in the United States would be to monitor but not adjust the economic activity until the unemployment rate is lower and base wages are higher. Then, it should support the continued decline of unemployment while it maintains, not raises or lowers, interest rates. Failure to do so would increase unemployment again and possibly increase inflation.