The US economy is facing slow growth and higher prices, according to the most recent survey by the US central bank, the Federal Reserve.Sounds like a classic case of stagflation, as mentioned later in the article. Note the adjectives describing the low growth rate of the US economy. Why are people spending less on luxuries?
Economic activity was "weak, soft or subdued" across the country, said the Fed's latest Beige Book report.
And spending slowed, with consumers concentrating on "food, staples and essential items" rather than luxuries.
The article continues with this:
The survey points to the same dilemma that is facing central banks around the world - the contradictory pressures of rising inflation and slowing growth.What's contradictory about these pressures?
The Fed has kept interest rates unchanged at 2% for the past six months, and the market expects no change when the Fed's open market committee next meets on 16 September.With interest rates at 2% (compared to 5% in the UK) why aren't US consumers splurging on durables?
Car sales were particularly weak, a trend confirmed by the latest industry figures, which show a double-digit drop in orders at Ford, GM, and Chrysler.The answer ay have a lot to do with this:
However, with housing prices still falling at 15% annually, and financial firms restricting their lending, consumer confidence is at an all-time low.Lastly, what do you understand by this:
The weak employment market, with nearly 500,000 job losses so far this year, is another drag on consumer spending
In addition, the dollar has halted its slide, and began the strengthen again on the back of weaker-than-expected growth in Europe.What does 'halting its slide' mean and how does this affect the US AD? How could weaker than expected growth in Europe affect the USD/Euro exchange rate (2 routes are expected - one obviously dominates here)?
Isn't it fun when just a few months after taking the IB Economics course you can read so much more into an article?
The full article is here.