The American Economy is in a complex state

The economy of the United States is in an odd position. It is creating jobs, and wages that are finally outpacing inflation, after three years of inflation outpacing wages. However, Americans are so pessimistic about the state of economy, regardless that it has improved, but not to where it was in February 2020.

That does not mean it is in a terrible situation, or a great situation. The economy is in a time in which the federal reserve and government need to be careful. With first quarter growth being 1.5% annualized which is slower than expected. One thing I believe the government could do, and we should be able to have extreme bipartisan support is making the tax cuts for the middle-class that were in the tax cuts and jobs act permanent. These cuts are going to expire in 2025. This is not one bill fixes everything this is going to take effort. Congress passed an infrastructure bill in 2021 with bipartisan support. Hopefully this bill will begin to show its positives sooner rather than later. It was $1 trillion which makes for a very large investment. To spur growth, the government could pass another infrastructure package. There could be an unintended consequence of more inflation which could if handle correctly be prevented by doling out the money to critical projects that would create jobs, particularly on the supply side of the economy.

The federal reserve are the ones that have the real power. If they were to cut rates, the economy would see growth because it would be more spending and investment. Inflation is near the target of 2% the federal reserves preferred metric stands at 2.7%. This leads to an economy that is in stasis essentially because everyone is waiting for what the federal reserve will do. The fact that it is an election year also complicates things, because there could be a huge overhaul in regulations afterwards. The good news is that the fed have decided to not increase rates and are maintaining them which means they don’t feel the need to make rates go up to tame inflation. This has a dramatic impact on the global economy. Considering that the US is going in a protectionist route like many countries. However, because America is the most powerful nation to ever exist, it makes an outside difference if the US decides it can’t have a fair deal with a country. America has a history of protectionism from embargoes of France within the first 15 years of existence to the decoupling of relations between the United States and China. This is a great balancing act when it comes to how to best move forward to prevent a recession. Inflation data will be the thing to watch for over the next few months. If they continue to decline rate cuts should come towards the end of the year. Let us hope that America and the world can get through this with better economic growth than even before 2020.