Current macroeconomic situation
The United States boasts of being a leading economic power in the world, and as a result, the recent economic recession in the country led to the repercussions being felt in almost all the parts of the world. Recovery from the global recession has generally been slow but consistent; therefore, a return to the economic situation as it was during 2008 and 2009 recession period is highly unlikely if not impossible.
The US economic recession, which triggered the global recession, was triggered by the sub prime mortgage market that had accumulated great debts. This later led to the collapse of some financial institutions that had investments in the mortgage market.
Capital and lending
Lack of repaying mortgages has resulted in many of the financial institutions having capital impairment, hence making the companies unable to acquire and give more loans to the public.
This capital impairment has mainly been brought up by the defaulting in the repayment of loans by members of the public due to various economic problems the citizens are facing. In addition, there is uncertainty regarding inflation levels in the future. However, the government has been able to control the inflation to a level that is not very high (OECD, 2010, p. 47).
Unemployment
The economic recession resulted in loss of many jobs due to the collapse of various companies. This loss of jobs was also necessitated by the fact that companies were trying to reduce their operational expenses. The high unemployment rate has resulted into reduced spending by the citizens, the result of which is the reduction in aggregate demand.
This has in effect resulted into a considerable reduction in the gross domestic product of the US, as private consumption accounts for 70 % of the GDP of the USA (Economic Research and Performance Analysis, 2011, p.4). However, the private consumption is recovering slowly and steadily from the effects of the recession.
Data from the fourth quarter of 2010 shows that there has been an increase in the private demand and hence leading to a slow but steady increase in the Gross Domestic Product. During the fourth quarter, unemployment rate reduced to 9.4 %; and though still high, the unemployment rate is expected to reduce even further in 2011 as the economy stabilizes (Economic Research and Performance Analysis, 2011, p. 5 – 6).
However, the unemployment rate is low compared to the rate that was experienced in 2009 when it was above 10 percent. The high rate of unemployment drove inflation rates to very low values (OECD, 2009, p.9).
Financial markets
Financial markets were also adversely affected by the economic recession. This was mainly brought about by reduced investor confidence in the financial markets, thus necessitating the government to take measures to help increase investor confidence. However, investor confidence is slowly rising, as reflected in the gradual but steady increase in the market activity and market capitalization.
Housing
Among the worst hit areas of the economy is the housing market, which, in fact, triggered the recession. Demand for housing units has reduced significantly, resulting into a reduction in investments in this sector of the economy. However, this market segment is slowly recovering from the previous conditions witnessed during recession (Economic Research and Performance Analysis, 2011, p. 10 – 12).
Measures to be taken by the US congress and the Federal Reserve
Inflation
The current macroeconomic situation shows that the US economy is slowly recovering from recession. The recovery is in fact on the right track enabling the economy reach full recovery. Therefore, the Federal Reserve should ensure that it does not buy treasury bonds to artificially increase demand for bonds, as that would have the adverse effect on increasing inflation.
Unemployment
Unemployment rate continues to be unacceptably high and thus, putting strain on other sectors of the economy. The US congress should ensure that it passes legislation to help increase employment and thus lead to an increase in GDP. This can be done by injecting money into the economy through undertaking initiatives that will create employment.
The contribution of US $ 787 billion fiscal stimulus package provided by the government to the growth of the economy has been diminishing slowly since most of the money has already been paid out (Economic Research and Performance analysis, 2010, p. 14). The Federal Reserve and the US congress should therefore come up with other methods that would inject money into the economy, as the fiscal stimulus was shown to contribute to the growth of the economy.
In fact, without it, the economy would have fared far much worse. To help reduce unemployment rate, the US congress can also pass legislation that will provide incentives to companies employing a large number of people. The injecting of money into the economy is generally as short-term method of helping recovery of the economy; however, it is a fact that the government cannot continue giving the fiscal stimulus for long (OECD, 2010, p. 4).
Housing market
To help in stabilization of housing market, the US congress should ensure that it passes laws that will ensure close monitoring of the market to ensure that the gains made are not lost.
In addition, the US congress needs to ensure that it passes legislation that will help in attraction of investments in the housing market to help prevent total collapse of the market. The legislation should mainly be made to help the housing market in the long term, as well as help to prevent the occurrence of the situation that led to recession.
References
Economic Research and Performance Analysis. (2010). U.S. macroeconomic outlook. Corporate Executive Board. Web.
Economic Research and Performance Analysis. (2011). U.S. macroeconomic outlook. Corporate Executive Board. Web.
OECD. (2010). General assessment of the macroeconomic situation. OECD Economic outlook Volume 2010/2 Preliminary version. Web.
OECD. (2009). Perspectives économiques de l’OCDE, Rapport intermédiaire mars 2009. NY: OECD, Publishing. Web.