Lack of Policy Framework and Market Confidence Lower Confidence and 2013-2014 US Economic Projections

The economy in the United States is set to post real GDP growth in 2012 of approximately 2.5%. After a strong start in the first few months of 2012, a bout of market fears generated by the disarray and confusion in Europe and rising concerns over the pace of the slowdown in global trade had the effect of freezing corporate expansion plans and slowing the pace of net new job creation. Progress in the European sovereign debt and banking system debacle along with more economic stimulus from China suggests second half US economic growth will be slightly better than the first half. While the 2012 hurdles for the US economy were largely sourced from the international arena, longer-term challenges are more likely to be home grown, in the form of a lack of market confidence in both fiscal and monetary policy that may slow growth prospects for 2013.

This report focuses first on the relatively solid and robust condition of the US private sector. The private sector has completed its deleveraging process following the financial panic of 2008 and has established a solid foundation. What is missing is confidence in the future, which brings us to our main arguments for consideration. Consumer and business confidence in the US economy is being held back both by fiscal and monetary policy. The fiscal policy issues are relatively well-known; however, the drag on the economy going forward from a highly accommodative monetary policy is less well appreciated.

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