The U.S. economic growth has been mixed over the last few years. According to the World Bank, the U.S. annual GDP growth rates for the years 2010, 2011, and 2012 were 2.5, 1.8, and 2.8, respectively (The World Bank). There are various factors that shaped the GDP over the period 2010-2012. The economy did relatively well in 2010 because consumers started spending money and U.S. exports also had a good year. But the economy didn’t grow at a pace that would satisfy Fed, thus, Fed lowered interest rate in late 2010. 2011 was a difficult year for the U.S. economy due to several factors such as lower government spending. When government spends money, it helps create jobs as well as sales for the private sector. 2012 was a relatively better year due to rising government spending as well as some recovery in the housing sector. The economy also benefitted from government spending as well as better-than-expected exports (Amadeo).
The Federal Reserve Board has kept the federal rate to a nominal rate in recent years because low interest rates help promote economic growth. Low interest rates mean borrowing is cheaper and businesses respond by borrowing more to invest in their operations. Similarly, consumers borrow more to fund their consumption activities which help create demand for goods and services. As a result, companies do not only have more sales but also hire more people to meet demand. Fed’s decision to keep interest rate has helped the U.S. cope with the recent financial crisis better than many countries and it is not a surprise that IMF has attributed slow economic recovery in Europe as compared to U.S. to high interest rates (EU Observer, 2013).
- Amadeo, K. (n.d.). U.S. GDP Current Statistics. Retrieved January 14, 2014, from http://useconomy.about.com/od/economicindicators/a/GDP-statistics.htm
- EU Observer. (2013, April 17). IMF warns Europe of falling behind US on recovery. Retrieved January 14, 2014, from http://euobserver.com/economic/119829
- The World Bank. (n.d.). GDP growth (annual %). Retrieved January 14, 2014, from http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG