Could Solving the Fiscal Cliff Boost the Economy?
Posted at 11 a.m. on Nov. 14, 2012
Ryan Avent notes that stalling inflation expectations may be an early indicator that the economic recovery is “losing momentum.”
“Other proxies for demand—equity prices, bond yields, and the level of the dollar—have also moved, albeit modestly, in worrying ways. The S&P 500 is down a bit over 5% from its September high, the 10-year Treasury yield has fallen more than 20 basis points since October.”
A touch of optimism: “My hope is that dimming market expectations are mostly due to American fiscal uncertainty and mostly amount to pricing in of a low but real risk of fiscal disaster. In that case, signs should quickly swing positive when (if?) Washington takes steps to lessen the fiscal blow as of January. But despite the Fed’s reassuring action in September, the global economy remains fraught with pretty substantial risks. And politicians still haven’t learned not to monkey around with all-too-fragile recoveries. America may have glimpsed the sunlight beyond the edge of the woods in September and October, but it isn’t out yet.”