US Macroeconomic policy 2006-2008 Research Paper

US Macroeconomic policy 2006-2008 - Research Paper Example With the global political situation ever changing, foreign policies fluctuation in split second, the economy has suffered too over the recent years. This paper describes the United States of America's macroeconomic polices in the recent years and their impact on the people. We shall consider the past three years and look at how the changing economic policies changed business interests and how they impact the overall economic situation of the state. In 2006 U.S economy was still suffering from the effects that the hurricanes such as Katrina had on the U.S. economy and because of their reverberations in 2006. The health of the national economy was facing threat, due to the severe beating that the infrastructure took-most notably the infrastructure for energy. For the preceding year and a half, energy prices had surged worldwide. When the storms hit at the end of August, economic activity had been quite robust for several years, supported by monetary accommodation and strong productivity growth. Real GDP had grown steadily at, or above, its potential or long-run sustainable pace, which is estimated at around three and a quarter percent. This pattern continued even during the third quarter-immediately following the hurricanes-when real GDP grew by just over four percent. In the fourth quarter, growth did drop sharply to about 1 percent. However, a good deal of this slowdown appears to have been due to several temporary factors, non e of which were related to the hurricanes. In 2006 the US economy was facing a great deal of un-certainty; the economy appears to be approaching a highly desirable glide path. First, real GDP growth currently appears to be quite strong, but there was good reason for it to slow to around its potential rate as the year progresses. Second, it appears that US economy operating in the vicinity of "full employment" with a variety of indicators giving only moderately different signals. The Fed raised the federal funds rate by 25 basis points a total increase of 350 basis points. However, once the rate got to 4 percent, the issue of exactly how much accommodation actually remained in the economy became more of a judgment call. As a result, some further policy firming was needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. The U.S. Economy and Policies in 2007 In 2007 the data showed payroll employment growing at a rather robust pace for all of last year. Moreover, the unemployment rate had declined by half a percentage point over the past year; this suggests a degree of tightness in the labor market, The decline started toward the end of 2005 and residential investment has fallen-in absolute terms-by a total of 13 percent. This sector alone which represents only a small fraction of U.S. real GDP-subtracted a hefty 1 percentage points from real GDP growth. Housing starts have followed a similar pattern, reaching a climax in January 2006 and then falling by roughly 40 percent through January of 2007. In addition to housing, weakness in