The determined and expansionary measures taken by the US-American economic policy give rise to the assumption that the heavy slide in the economic activity will not result in a recession but will be overcome as early as this year. This conclusion was reached by the DIW Berlin in its latest weekly report 23/2001. It is above all the Fed's promotion of growth and employment that gives a positive impetus to the economy.
The US-American policy tries, above all, to stabilise the businesses' profit expectations. If the course followed turns out to be successful, losses in income will be limited, instability will be reduced, investment and private consumption will again gain in dynamics. A tax reform aiming at tax cuts will also help to increase the private households' consumption. Low income groups will receive tax refunds in the form of crossed cheques in summer. Henceforth, their high propensity to consume will stimulate consumption.
Monetary policy blazes the right trail. Since January interest rates have been reduced by 2,5 to 4 percentage points. This alone increases the real growth rate of the USA by 1 to 1,5%. The DIW Berlin emphasises in its report the broadly defined objective function of the US-American central bank which also takes trends in economic activity into account. This distinguishes the American central bank's policy from those of other central banks which like in former times the Bundesbank and today the European Central Bank put greater emphasis on the stability of the overall price level. With the help of a simulation model the DIW proves that the American economy would not have staged such a recovery if the central bank's monetary policy had been as conservative as the policy of the European Central Bank. However, investments and private consumption would be much lower if the upswing had been stopped earlier by monetary restrictions. Such an economic course also prevents the sustainable reduction in the number of unemployed.