A Short Note On The US Economy

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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Ceteris Paribus, US economy has recovered well since the First Quarter of 2011. It demonstrated a steady growth pattern, albeit with some fluctuations, appearing to settle around a mean annualized real growth rate of 2.0 per cent.

The fiscal expansion that has been in place since 2008 is contracting while monetary accommodation continues – a healthy response from the government which is appropriately allocating responsibilities between the various instruments of macroeconomic policy.

Looking forward, inflation, though stable, poses a moderate risk at this time to achieving a self-sustaining steady state growth. Aggregate demand and aggregate supply shocks pose the lowest risk, though expectations can drive, under certain circumstances, both these variables in undesirable directions into negative feedback loops.

The expectation of a non-inflationary slow decline in unemployment under the current exceptionally low federal funds rate of near-zero for an extended period of time, through end-2014, may return the country to about 5.5 per cent unemployment when monetary accommodation could perhaps begin to contract under our continuing operating assumption that most, if not all future growth, as the employment level rises, is structurally non-inflationary in prices as wage or payroll demands due to employment increase on employers.

Transformations advises the Federal Reserve not to embark on another round of beyond zero-bound Quantitative Easing.


About Chandrashekar (Chandra) Tamirisa

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