Liquidity Trap Ensures Policy Will Drive Economy in 2013

The U.S. economic expansion will probably continue in 2013 at last year’s subdued pace. A substantial fiscal drag as payroll taxes are reset back to 6.2 percent from 4.2 percent, and an increase in income taxes on households earning more than $450,000, will both play a major role in this slow growth scenario. Fiscal restraint, weak wage growth and muted household expenditures all indicate that the economy will do well to meet the Bloomberg consensus forecast of 2 percent growth this year.

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