The existing odd scenario of economic uncertainty has been the order of the day from the time when the global economy was hit by a recession in 2008. The market crisis reduced interest rate to almost a zero digit. At the start of 2010, many anticipated the Federal Reserve to hike the interest rates as an exit strategy of solving the market crisis within the second phase, however those hope were hard-pressed and did not see the light of the day due to existing volatility at the financial markets and, to a large extend, as a result of the sovereign debt crisis in Europe (Birkner, 2010).
The proceedings of a lengthy meeting by the Federal Open Market Committee (FOMC) in April 2010, revealed that economic situation is likely to be equivalent to very low levels of the Federal Funds rate for a long period of time, as a good number of FOMC members forecasted economic sagging that may persist to higher levels for some time, with inflation staying lower than rates that would be steady in the long run with the dual objective of Federal Reserve.
Birkner (2010) affirms that a precaution have been put to keep inflation in checks and balances, as FOMC postulations shows that consumer price inflation was small in current months as economic survey quantify that long-standing inflation outlook was quite stable.
The key factor for the slower than expected recovery of the US economy is believed to be the combination of the crisis in Europe concerning China overheating on the global market and the tell on U. S. inflation is not as claimed to be inflation but deflation, has been given odd rate structure. Economists believe that provided the European Union and China forms the headlines of the financial magazines, then U. S. should prepare for the worst scenario as interest rates is slanting. Economic Analysts have argued that EU is in a driver’s seat for economic recovery of the world, thus failure to take care of their debt issues may primarily freeze the credit markets.
They stresses that the condition in Europe may perhaps have a bang on recovery of U. S. by shortening the growth rate which is a key to economic recovery. Nevertheless, this weakness could also have a domino effect in addition to piloting to weakness in China, which is presumed to be a main driver for global economic growth (Birkner, 2010). Factors for the slower than expected recovery of the US economy Economic experts have started showing their pessimistic views (including the leaders of the Federal Reserve Systems) in relation to much needed sustained recovery in near future.
They have also expressed their deep concerns about the level of competitive position of the US in the world economy (Irwin, 2010). The slower than expected recovery of the US economy has been attributed to slow growth rate, slow pace of private sector jobs, decline in ranking for college education, the alarming rates of high school dropout, failure in building credible programs for effective environmental control and EU economic crisis.