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Operations of the FOMC

Operations of the FOMC

Nations are seeking economic development experiences and face difficulties in evaluating their economic status due to lack of a comprehensive evaluation method. As a result, most nations use multiple indicators to analyze their economic status in order to obtain a more definitive picture of their economy. The current paper outlines different economic indicators in economic development evaluation.

Gross Domestic Product is the world’s most widely used economic indicator. The US experienced a GDP of 4.6% as of August 2014. This figure favors positive investment by the long-term investors because it offers a sustainable rate of growth. The figure also indicates controlled inflationary dynamics, favoring the consumers’ spending (World Bank, 2014). However, the GDP fluctuations, as indicated by -2.1% in the first quarter of this year, present uncertainties of the short-term economic future of the US. These uncertainties notwithstanding the country’s industrial production rate (5.6%) in the second quarter of the year 2014 provide hope for continued international trade (World Bank, 2014).

The Consumer Price Index measures the changes in the prices of goods and services from year to year. The economic meter offers final prediction of both the fixed Income markets and the equity. As on August 2014, both the total CPI and the total CPI with food and energy exclusion stood at 1.7%, indicating a bear able inflation status. The CPI for the commodities indicates a mildly deflating status of -0.4%, while the services’ CPI shows a mildly inflating state (World Bank, 2014). These indices indicate tha the current cost of goods and services is within bearable ranges, favorable for the long-term investment programs. The future expectations are based on the same indices; it is expected that the cost of the commodities will remain below the base-year value (Karabell, 2014). Nevertheless, the total CPI will remain above the base year value because of the high (2.5%) services’ CPI (World Bank, 2014). Additionally, CPI values may create investment confidence among the international investors. The value of the nonfarm payroll employment can provide a detailed insight of the total income earned by all employees who do not work in the farms, humanitarian nonprofit institutions, private households and the government (general employees). The nonfarm payroll employees account for up to 80% of the US GDP (World Bank, 2014). The change of the nonfarm payroll employment of the US increased consistently from around -3.2% in 2010 to 1.8% in August 2014 (Karabell, 2014). The above mentioned fluctuations prove there is a correspondent improvement of the employment rate in the US. The improvement creates an expectation of a stable-to-increased GDP value. The report on goods with a lifespan of three or more years helps to show the value of all capital goods ordered by the manufacturers in a specific country. The durable goods report shows an improvement from $180 billion in year 2010 to $246.1 billion in August 2014 (World Bank, 2014). The trend shows an existing high-level business activity in the US with its expected increase – depicting the manufacturers’ plans to increase their production capabilities. The housing sttarts report shows the number of residential buildings developed every month. The value of the housing starts helps to indicate the business cycle of the country (Karabell, 2014). The report reflects the expected status of the real estate sector with high values depicting a future stalling.

The report of the retail sales in a country shows the total value of goods sold by the sampled retailers per month. This indicator shows the existing state of the economy and can help determine the pre-inflationary phase of the economy. The percentage retail sales in the US have consistently remained around 2.5 4% over the year 2014, depicting a stable level of spending in the country (World Bank, 2014). The investors’ expectation is that the Fed rate will remain correspondingly stable throughout the year. The S&P 500 stock index indicates the status of the equities of 500 selected companies in the US, reflecting the risk-return characteristics (Karabell, 2014). This index has consistently increased throughout the last four years to stand at 1966 on 25th September 2014 – up from around 1100 in 2011 (World Bank, 2014). This rise of the index value will put the investment benchmark high, affecting investors’ decision towards correspondence with the index.

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As indicated by the above economic indicators, the US may experience a stable economic future. This trend may include almost 0% unemployment rate, an enormous scale of manufacturing, low inflation rates and high rate of investment on the equity. It is a recommendable for FOMC to maintain a stable level of FED rates to favor the indicated trend.

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