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Australian economy Assignment PDF

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Added on  2021-06-15

Australian economy Assignment PDF

   Added on 2021-06-15

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Australian And The United States’ Interest Rate 1AUSTRALIAN AND THE UNITED STATES’ INTEREST RATEBy (Student’s Name)Professor’s NameCollegeCourseDate
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Australian And The United States’ Interest Rate 2AUSTRALIAN AND THE UNITED STATES’ INTEREST RATEIntroductionThe Australian economy has been increasing in the last few years, and it is in its 26th yearof consecutive growth. The Reverse Bank of Australia (RBA) in May first, during its monetarypolicy meeting, left the cash rate of Australia at an all-time low of 1.5%. With this fixed rate thebank expects the Australian economy to increase above 3% percent in 2018 and 2019. In theeconomic activity in the country, the conditions for business are becoming more favorable whichprovide room for the expansion for investing in the non –mining business. Also, the economy isbeing boosted by investment in public infrastructure and growth is expected from exports in thecountry (Clemente et al. 2017).The country has experienced growth in employment over the last few years. However,the unemployment rate still remains high. The growth has resulted in an increase in the laborforce primarily among the females and the elderly in the country. The rate of unemployment inAustralia has declined in the last years but recently, has become steady at 5.05%. However,employment growth is expected to increase in the coming years thus the unemployment rate isexpected to reduce. The labor market is also growing, but the growth in wages remains low. Thiswill most likely continue for a while, but as the economy is becoming stronger, growth in wagesis expected. As for now, employers are finding it difficult to employ with the necessaryqualifications because of this (Behlul et al. 2017).The RBA expected low inflation rates and this was the cause of the rates and CPI beingbelow 2%. The rates are expected to remain low for some time showing that growth in laborcosts will be low and the competition in retailing will be stiff. However, the inflation rates are
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Australian And The United States’ Interest Rate 3expected to increase as the economy becomes stronger. The RBA's forecast is for the CPI toinflate slightly above 2% in 2018 (Hambur and Finlay 2018).Housing prices and transport prices have increased slightly, and this has caused a fastgrowth in the food prices. However, in Sydney and Melbourne, the housing market has sloweddown, and prices have fallen in some places in the country. More apartments are scheduled to bebuilt in the Eastern cities to increase the housing market (Valadkhani and Smyth 2017).The board thus believes that with the constant interest rates then they will be able to havea gradual growth in the economy and that it will be sustainable. The RBA believes that the low-interest rates continue to support the economy of the country and aim at reduction inunemployment and to return inflation to its target.US Federal Reserve increase in the official interest rateThe US Federal Reserve increased its interest rates in May during their meeting by aquarter which is 0.25%. This is from a low range of 1.5% to 1.75% (Elmendorf and Sheiner2017). This hike marks its 6th since it began credit tightening in December 2015. This was afterthey had kept their benchmark rate at near zero which was a low record for seven years so thatthe economy can recover from the recession. Powell presided over this meeting after succeedingJanet Yellen, and the action was approved 8-0. A large number of economists say that thedecision to raise the rates despite the recent data that had some hiccups in areas such asconsumer spending shows that the Fed has faith that the economy is resilient (Al Marhubi 2017).This action means that individuals and businesses will have higher loan rates in thefuture. The interest rates are expected to increase twice this year, and this is because the USeconomy has become stable and is stronger (Christensen and Rudesbuch 2017). This is evidentas seen in the labor market that is continuously increasing thus strengthening the economic
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Australian And The United States’ Interest Rate 4activity. Also, the employment rate has been high with unemployment rates being low. Theunemployment rate that is now at 4.1 percent is expected to drop to 3.8 percent at the end of2018 and to 3.6 percent at the end of 2019. This record will be the lowest in half a century.The housing market has also improved with recent data showing its moderation from itsfourth-quarter pace that was strong (Sommer and Sullivan 2018). Business investment has alsocontinued to grow sharply over the past few years. Based on a 12-month report, both inflations ofitems and the overall inflation have increased close to 2%percent. This excludes items such asfood and energy.The Federal Reserve seeks to ensure that there is adequate employment for everyone andthat there is price stability in the economy. The committee forecasts that with continuesadjustment in the monetary policy then the economic activity is expected to increase at amoderate rate and the conditions in the market will remain strong. The committee's inflation is at2 percent and based on 12 months the inflation is expected to run near this number. Theanticipated risks of the forecast are also roughly balanced.Therefore, given the forecast of the conditions in the labor market and the inflation ratesthe committee decided to maintain the federal fund rates at 1-0.5 t0 1-0.75 percent. The monetarypolicy stance remains accommodating and thus supports strong labor markets and an inflationreturn to 2 percent (Di Maggio 2017).To determine the time and size of the future adjustments the committee is going to assessthe forecast economic conditions in relation to the objectives which are to provide maximumemployment and reach 2 percent inflation. The assessment takes into account a vast range ofinformation. This information includes conditions in the market, laboring measures, inflationexpectations and inflation measures indicators, international and financial reading developments.
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