The recent performance of the United States economy has caused mixed feelings. On the one hand, the GDP growth rate dropped from 5.6 percent and 2.6 percent in the first two quarters to 1.6 percent in the third quarter. On the other hand, the stock market is booming and the Dow Jones index continues to reach record highs. It is a matter of economic perspective. Should the US implement changes to ensure a "soft landing" or wait for the probability of a "hard landing"? The issue has not been resolved. As the leader of the world economy, the situation in the US has caused widespread concern. In my opinion, there are three factors that will determine the future direction of the US economy.

In July 2004 the US Federal Reserve tightened its monetary policy to curb economic overheating. As of July this year, it had raised the federal interest rate 17 times. It is currently stable at 5.25 percent and has achieved a measure of success in macro-controls. As a result, the housing and auto markets have cooled; industrial production has slowed; and the chain store business has experienced a downturn. During a meeting of the open market committee at the end of October, Federal Reserve policymakers emphasized that these are only temporary phenomena, which are not likely to curb the pace of economic expansion. Meanwhile, business data shows that the employment rate is continuing to rise steadily with many companies in fact having difficulty finding suitably qualified workers. In some areas, the supply of professional and technical personnel does not meet the demand, pushing up wages. This kind of pressure might result in the increase of costs and inflation.

Concerned about inflation and different opinions of decision-makers, the Federal Reserve decided to keep the federal interest rate at the same level and pay close attention to future developments.

The prosperity of the real estate market has been the main pillar of economic growth in the United States. Low interest rates have helped expand the real estate business as well as pushed up real estate prices, generating a lot of wealth that has pushed forward growth and investment.

Data provided by the Federal Reserve Bank shows that in 2005 the incremental net assets of US residents reached $3.9 trillion, accounting for 42 percent of the gross personal disposable income for the year. The impact of the real estate market on the overall economy and financial market has become greater and greater.

An important reason for the decline of GDP growth in the third quarter is that investment in housing fell by 14.7 percent. At present, the real estate market is sending out mixed signals. On the one hand, housing sales have slowed as the housing stock has doubled; on the other hand, the housing market index of the National Housing Building Society has continued to rise in the past two months after dropping 30 points in September. Based on this, some people believe the US real estate industry has already survived the worst period. Housing market trends have a major impact on the development of the US economy.

The price of oil and related products is another factor which has an influence on the US' economic performance by transferring purchasing power and adjusting automobile sales. Since August, the international oil price has fallen by nearly by 20 percent, which is beneficial to the stability of the Consumer Price Index and the booming stock market. It also gives the Federal Reserve greater leeway to adopt a more flexible monetary policy. However, with the imminent arrival of the peak period of energy consumption in the northern winter, US' oil stocks will diminish. Taking into consideration the possibility of geopolitical incidents and natural disasters as well as the impact of speculative factors, the possibility of soaring of oil prices cannot be ruled out.

The US economy has entered a peak period of prosperity. Whether it can implement the appropriate macroeconomic regulations and controls to extend this period of prosperity period is of essence. The United States needs to accurately estimate productivity in different circumstances, so as to decide on the extent of regulations and the timing to implement them.

This will not be an easy task. In his testimony to Congress, Federal Reserve Chairman Ben S. Bernanke said the Federal Reserve is facing a dilemma. On one hand, overly-high interest rates will hurt the economy. On the other hand, the US will be unable to contain inflation without raising the rates. This is true. If both the real estate situation and oil prices show promise and do not affect consumption, and the Federal Reserve can adopt a solid macro-control policy and the US economy will be able to make a "soft landing" next year.

By People's Daily Online; the author, Chen Baosen, is an honorary official at the Chinese Academy of Social Sciences