USA ECONOMY

The economy of United States of America is the most highly developed economy. It is considered to
be the world’s largest economy by nominal GDP and purchasing power parity.  It also has the world's
seventh-highest per capita GDP (nominal) and the eleventh-highest per capita GDP (PPP) in 2016.
The US has a highly diversified, world-leading industrial sector. It is also a high-technology innovator
with the second-largest industrial output in the world. The U.S. dollar is the currency most used
in international transactions and is the world's foremost reserve currency, backed by its science and
technology, its military, the full faith of the U.S. government to reimburse its debts, its central role in
a range of international institutions since World War II, and the petrodollar system. Several
countries use it as their official currency, and in many others, it is the de facto currency.

As an investor’s point of view, we will be reviewing GDP, exchange rate, interest rate and Inflation
rate.

Over the period

of 10 years, the
annual GDP of
the country
grew. After
2007-2009
financial crisis,
US has
successfully
Figure 1
revived their
economy using expansionary fiscal and
monetary policies (Figure 1). They went onto reducing their
interest rates to 0% in order to increase domestic demand
and investment in the economy. The United States is typically regarded as the home of free-market
economic policies. However, the U.S. government exercises a significant amount of regulation over
economic, commercial and financial activities. Following the recession, the government stepped up
its oversight in the financial sector. The Dodd-Frank act, passed in 2010, represents the most
comprehensive reform of financial markets regulation since the Great Depression.  After reviewing the
GDP growth of the country and the recent economic regulations, we can consider US as an investment
hub.

Looking at the interest rates of the past 10 years so there has been a tremendous decline in the FED
rate. During 2006-2008, the interest rates had peaked to 5.75%. It was really expensive for the
investors to borrow and invest do the demand in the economy declined. During the crisis, FED had
reduced the rates to 0% and maintained it till 2015. Now they have increased their interest rates to
2.5%. As studied in theory, increasing interest rates will increase foreign direct investment in the
country as investors will be earning greater return against bond investment.  US expects to increase
this interest rate to 3 percent in 2019, and then leave it there. The Fed began reducing its $4 trillion
in Treasuries in October 2017. The Fed acquired these securities during quantitative easing, which
ended in 2014. Since the Fed is no longer replacing the securities it owns, it will create more supply
in the Treasuries market. That should raise the yield on the 10-year Treasury note. This will drive up
long-term interest rates, such as those on fixed-rate mortgages and corporate bonds. But Treasury
yields also depend on the demand for the dollar. If demand is high, yields will drop. As the
global economy improves, investors have been demanding less of this ultra-safe investment. As a
result, long-term and fixed interest rates will rise in 2019 and beyond. 
Moving onto US exchange rate policy, they have maintained floating exchange rate policy. The
economy experienced exchange rate depreciation during financial crisis as the demand for their
country fell but in a way it boosted the country’s exports. Currently the exchange rate is stabilized
and it is still the strongest and used currency around the world. People usually speculate and invest
in the currency whenever it will appreciate in the future. On the other hand, strong currency means
that imports will increase and slow down the economic growth. As an investor, we will have to
analyze our investment options (products) and decide on the basis of greater return.

Over the past 10 years, the

inflation rate varied widely.
Inflation rate was soaring in the
start of 2000s, later on during the
financial crisis the inflationary
pressure reduced due to fall in
demand. Later in 2010, due to
expansionary policies demand
increased and aided to the
demand pull inflation but the
economy moved towards growth.
Since the recession the country
has tried to maintain a steady
inflation rate of 2%. Due to this the
country was able to increase
export as their prices were down
compared to other countries.
Furthermore, maintaining a low
inflation rate has increased the
real exchange rate of the country.
The return on investment in real
terms will be higher so investing in
US is an attractive option.