[Author’s Name]
[Institution’s Name]
Essay on Effects of Macroeconomic forecast
Most economic forecasts are for moderate growth and low inflation in the United States for the foreseeable future. To be sure, we see a range of views about just how much underlying strength the economy has, about the intensity of any inflation pressures, and about the path of interest rates that will be associated with continued growth and low inflation. But for the most part, that range is narrow relative to the actual fluctuations the U.S. economy experienced in the 1950s, 1960s, and 1970s.
The fundamentals, such as growth and inflation expectations and underlying financial conditions, appear to support continued good economic outcomes. Moreover, the flexibility and resilience of markets for finance and for goods and services, together with monetary policy focused on maintaining price stability and high employment, should help damp the economic fallout from unexpected developments. However, although the most likely outcome for the overall economy is good, a number of characteristics of the current situation suggest some greater-than-usual risks around that central tendency, and, in particular, raise questions about the pattern of asset price movements that might accompany even favorable overall economic performance. That caution flows from the existence of some unusual imbalances in the U.S. economy today. We are buying far more than we produce, and the extra purchases come from importing more than we export, financed by net borrowing from abroad.
The resulting current account deficit has risen to a record level, in excess of 6 percent of gross domestic product. The counterpart of the current account deficit is low savings generated here at home; in the past year, household saving out of current income fell to the unusually low level of about 1 percent. Several factors have contributed to the willingness of households to spend most of their income, but an important one has been the rapid.................
