Macroeconomics: Risks for the US Economy

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Macroeconomics

The health of the economy is presented as continuing to improve and this is informed by an inflation rate that has continued to be held down though the improvement is expected to decline. This is indicated in the assertion that “inflation is expected to rise to a level of 2 percent in the medium term” (Board of Governors of the Federal Reserve System, 29). The health of the economy is expected to improve further driven by the stabilization of financial markets in foreign countries after a period of volatility earlier in the year, more so informed by prices of foreign equity with lower spreads of equity. The stability of the U.S market is, however, faces potential spillovers from shocks emanating from the financial markets and economic activity from abroad. This means that risks to the economy remains despite the acquired gains or growth. Other than in the category of energy and food, inflation has seen a little increment which means that price index, an indicator of the said inflation has also increased. Real GDP, however, has increased annually but the current rate of increase is higher with the overall growth expected be moderate in the first half of the year. The economy can thus be considered to be moderately healthy, even though fluctuations continue to be experienced.
The chair of Fed Janet Yellen advocates for cautiousness in the monetary policy and such an approach remains appropriate. She expected issues such as Brexit to have great repercussions on the labor market and the general economy. The two aspects, labor market and the economy, are expected to have a gradual rate of improvement or increment, given that the monitory policy is does not follow a predetermined course but is dependent on the developments experienced in the economy. She considers that significant uncertainty will remain on the economic outlook, in that there is a risk of domestic demand faltering and a continued slowdown in productivity is expected to be experienced. In her admission, she noted that there is little room for the situation to ease if the faltering of the economy is to be experienced.
The demand in the labor market and its improvement is slow although she expressed optimism in the improvement in the labor market over the coming few years. There is little reliance on forward guidance when the report was being produced as compared to the financial crisis period hence there was careful data monitoring more so for the demand and supply in the labor market. At that moment, there were a lot of job opportunities and openings but there was a disparity with the labor force available. The increased supply of oils is also shown to affect the energy sector in a big way, which was hit hard by the decrease in the oil prices. The low oil prices and the improvement in the labor markets has lead to an increased demand in the market as seen in Yellen suggestions that “ low oil prices and ongoing job gains should continue to support the growth of incomes and therefore consumer spending” ( Yellen,1) This indicates that the low prices of oil makes the prices of commodities to remain cheaper while the increased availability of jobs makes the consumers to have more disposable income which in turn leads to higher demand for the same commodities.
Work cited
Janet, Yellen. Semiannual Monetary Policy Report to the Congress .2016.1. Available at:

https://www.federalreserve.gov/newsevents/testimony/yellen20160621a.htm
Board of Governors of the Federal Reserve System. Monetary policy report. 2016.29. Available

at: https://www.federalreserve.gov/monetarypolicy/files/20160621_mprfullreport.pdf