Essay for financial markets and institution

Topics: Monetary policy, Economics, Inflation Pages: 3 (953 words) Published: October 7, 2014


INTERNATIONAL ECONOMY

In the US, the economy is stabilising although questions about the sustainability of the recovery remain. Different indicators suggest that economic growth is still being heavily influenced by inventory re‑stocking and government assistance. Some commentators believe that the boost from inventories will fade in coming quarters. The timing of the withdrawal of government stimulus will depend on how quickly private-sector demand is able to again drive domestic economic activity. Encouraging signs of this have been seen in recent consumer spending figures. Despite all the headwinds for consumer spending it seems as though the US consumer still hasn’t seen a sale they didn’t like. Worryingly for consumers though, weekly jobless claims have started to spike higher again despite recent monthly labour market data suggesting that the unemployment rate may have reached a plateau. The unemployment picture remains unclear given that this weekly data may have been impacted by the US hurricane season. With high levels of corporate profitability seen in the recent earnings season and improving levels of forward orders seen in recent business surveys, it seems as though firms are in a position to hire staff again. Whether or not they will seems to rest on how sure they are that the recovery is “real”. The US Federal Reserve (“the Fed”) has noted some of these recent modest improvements in economic conditions but notes that the still weak state of the housing and labour market are likely to temper the pace of recovery in the near term. The Fed, unperturbed by murmurings that California is having trouble re-financing maturing debt, reiterated its call that interest rates will remain on hold for an extended period of time.

In Europe, conditions appear to be stabilising but growth remains well below-trend. Countries within the Euro Area are demonstrating vastly different performance. Larger countries such as France and Germany...
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