Norris McLaughlin & Marcus, P.A.

News >

The Fed Continues to Dance – New Year’s Day 2013 and the Fiscal Cliff Are in Sight

The Federal Reserve Bank announced today that it plans to continue its “Quantitative Easing” program following the expiration of Operation Twist at the end of December.  Given its sense about the slow recovery of the U.S. and global economies, the Fed will continue its Quantitative Easing program into the foreseeable future.  Not only did the Fed announce that it would continue QE by buying $45 billion of Treasuries each month beginning in 2013, but it also announce that it would continue buying $40 billion of mortgage-backed securities.

With the U.S. unemployment rate at 7.9%, and the Fed’s forecast that the U.S. jobless rate will fall only to a range of 7.4% to 7.7% by the end of 2013, it reevaluated its economic growth forecast for the year to a range of 2.3% to 2.7%.  Previously, the Fed projected 2013 growth to be a minimum of 2.5%. To the surprise of many, the Fed set forth the parameters that would guide its monetary policy decisions – interest rates will remain near zero until the unemployment rate falls below 6.5% or inflation accelerates faster than 2.5% a year.

Notwithstanding that U.S. markets expected the Fed’s action, U.S. stock markets opened higher.  Though they sustained positive ground through most of the day, markets dropped in the last hour to remain barely flat. 

While the markets look for a political compromise, Congress and President Obama continue to do the fiscal cliff stand-off. Federal lawmakers and the President must reach a compromise on their tax increase and spending cut debate by year end or significant tax increases and spending cuts will automatically be in place and create real New Year’s Day hangover.  Many economists believe that hangover will cause the U.S. economy to fall back into a recession.  The clock is ticking toward New Year’s Eve …