CHICAGO, Sept. 12, 2011 /PRNewswire/ -- "Everything from the debt ceiling debate, to the downgrade of our credit rating by Standard & Poor's and the ongoing crisis in Europe, took a toll on both confidence and real economic activity in August." Chief Economist Diane Swonk analyzes the shifting economic prospects for the American economy, in light of policy dissent at home and the risk of contagion from abroad.
View a video featuring Diane Swonk discussing the challenges facing the U.S. and its European counterparts, as we head into the last quarter of 2011. In the September issue of Themes on the Economy®, she provides an important summary of recent Federal Reserve meetings in Jackson Hole, Wyoming and a review of fiscal and monetary options for stimulating growth. Read this month's issue.
- "Ideally, Congress would at least come up with a long-term (e.g., 10-year) deficit reduction program, with much of the pain back-loaded," said Swonk. But given the failure so far to tackle meaningful deficit reduction, she is not optimistic.
- Vocal dissent among voting members of the Federal Open Market Committee (FOMC) could slow monetary policy responses. The divergence of views at the August meeting marked "a new high for the Bernanke Fed, which has always tolerated more dissent than its predecessor," Swonk added.
- "At this point, the FOMC is expected to vote in favor of extending the duration of its portfolio in September," an option nicknamed "Operation Twist" because it would involve switching short-term Treasuries for long-term bonds, in an attempt to force long-term rates lower and push investors into seeking riskier assets (such as equities).
- Swonk also warns that in a globalized economy, we are all in the same boat. "The developing nations, in particular, can't consider themselves above the fray and ignore the risks of a global recession to their customers in the developed economies."
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