Seeking Added Stimulus vs. Lessening Policy Uncertainty
August 2nd, 2012 | By Nick Sargen
- The slowing of U.S. economic growth to a 1.5% rate in Q2 should set the stage for the Federal Reserve to undertake a third round of quantitative easing (QE3) by September. However, we think it will do little to boost the economy.
- A more effective strategy would be to reduce uncertainty relating to fiscal and regulatory policies. Economists at Stanford University and the University of Chicago have constructed an Economic Policy Uncertainty Index, which suggests that more than two million jobs have been lost due to policy uncertainty. While some economists have challenged these estimates, most would agree that policy uncertainty has hampered the economy in recent years.
- Decisive action to address the 2013 “fiscal cliff” would bolster confidence. However, the debate between the Democratic and Republican leadership over the 2013 budget will likely become more contentious leading up to the Fall elections, which could heighten policy uncertainty and frazzle markets.
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