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No cliff. What's the next problem

  • After the expected temper tantrums US politicians came up with a deal to avert the fiscal cliff. This will not change credit ratings (but who cares what they are?). It does not change our 2.3% GDP forecast this year either (we had assumed this sort of outcome). Next up, the debt ceiling.
  • The age of austerity in the Euro area is receiving some criticism, with the President of Portugal pointing out (as he signed more austerity into law) that austerity is hurting growth, which is hurting tax revenues, which hurts the fiscal position.
  • Euro area and UK broad money supply will offer something of a contrast at the moment. The failure of monetary policy in the Euro rests on the failure of banks to intermediate - hence weak broad money supply growth. In the UK banks are reluctant lenders, but there should be better broad money growth.
  • The US FOMC minutes from the last meeting are due and cover a period of easing. The Fed has, however, been fairly conventional in its unconventional policy to date, and it will be interesting to see if any more imaginative schemes were discussed.

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