Economic forecast

Economic forecast

Contrary to inaccurate weather forecasts, where we can make alternative plans with little or no consequences for a larger lifestyle, false economic forecasts can have serious consequences. Even though decisions about your financial future include strong assumptions, assumptions can be a better alternative than not making estimates.

Unfortunately, economic forecast is not an exact science. Because of their different interpretations of conflicting economic indicators, professional economists can deviate significantly from the direction of the economy at any time. This discussion focuses on two main points that can help you get a better understanding of where our economy is and what direction it will take in the near future.

How long ,.?

Economic forecasts are always looking for storm clouds that could signal an economic downturn. With consumer spending accounting for almost 75% of the economy, many observers look at the problem of paperback in looking for key clues about how to target the economy. While consumers usually do not shrink and cause the first recession, buying more loans becomes more than monthly payments and at some point consumers can only do what allows their income. When personal debt per capita rises, monitoring consumer debt becomes important because of the heavy burden on total consumer spending in our economy. At the same time, current federal decisions that support our macroeconomic climate must also be monitored, because the steps of the federal government can influence consumption habits.

The Role of the Federal Reserve Bank (Fed)

Every business observer knows that observing the Fed is a serious activity in the world of finance and business. You might ask, "What makes the Fed so important?" While consumers can influence the economy by responding to their own perceptions and paperback pressures, federal policy decisions such as fiscal and monetary actions also drive the economy. Fiscal policies passed by Congress in the form of taxes and / or spending laws are by-products of the political process and the prevailing political climate. In contrast, monetary policy is the responsibility of the Fed, which evaluates all economic forces (individuals, markets, and governments) and takes steps to maintain economic stability.

The Fed can manipulate money to achieve the desired effect from time to time. The most effective short-term political solution for manipulating the economy is short-term interest rates. Therefore, the Fed can realistically have only one goal - inflation. When the Fed feels that the prevailing forces will increase inflation, it will try to slow down the economy by raising short-term interest rates (the assumption is that rising borrowing costs are likely to reduce personal and business spending behavior). Conversely, if the Fed believes that the economy has slowed too much, it will try to encourage growth by lowering short-term interest rates (ie lowering borrowing costs). If it does not take control quickly enough (by raising interest rates), there is a risk that inflation will be out of control. If the economy does not loosen fast enough (through a reduction in interest rates), it can cause a recession. Indeed, it can be said that the Fed's main objective is to keep inflation low enough, not a factor in business decisions.

Up, down or sideways?

By looking at your own prospects for debt costs and burdens, and your friends, relatives and business partners, you can gain insight into the short-term economic future. Combined with a reasonable estimate from the Fed (e.g., multiple interest rate movements in the same direction can indicate that the Fed is on a mission) and in consultation with your qualified financial service provider, you might have a good basis for making decisions in Regarding your own financial future.