ABA Banking Journal - November 2013 - (Page 8)

the economy By Scott Anderson Impact of brinkmanship Washington politicians could have second Federal budget troubles weigh on consumer confidence careers in Hollywood writing cliffhanger 10 movie endings. Let's hope there isn't a 0 sequel to last month's performance in -10 our near future. Calmer heads prevailed -20 as Congress just passed a bill ending the -30 government shutdown after 16 days and -40 increasing the debt ceiling to avert techni-50 cal default on our national debt. -60 The sword of Damocles continues to -70 hang over our economy, however. The -80 -90 last-ditch Reid-McConnell agreement took the risk of national default off the Oct-08 Aug-09 Jun-10 Apr-11 Feb-12 Dec-12 Oct-13 table only until Feb. 7 when the debt ceilSource: Bloomberg ing will need to be raised again. The federal government will remain open at least until Jan. 15 when Congress will have Finally, these events in Washington to find a more permanent solution to the 2013/2014 budget. are likely to have altered the course Not much was settled. The political divide between Democrats and of monetary policy. With the budget Republicans appears just as wide today as it was several weeks ago. The real fight ongoing into December, it is tragedy would be if the two sides just saw this bill as a temporary cease-fire, takunlikely that Janet Yellen would advoing the next month or so as an opportunity to reload their weapons and update cate for a tapering at her first Federal their strategies. If global investors, consumers, and businesses get the message Open Market Committee meeting in that nothing has changed and more deadlines and threatened defaults loom, January, assuming she is confirmed it will continue to hold back their willingness to spend, invest, and lend future as Fed chair. This means the next money to the U.S. government. This is no way to run a national government. FOMC meeting in March 2014 is Although the darkness of the economic abyss is further in the rear-view mirthe most likely period the Fed would ror, measurable economic damage has already been done. We estimate that begin tapering monthly asset purchasthe government shutdown has cut a little over 0.2 percentage points of GDP es. The Fed Funds futures market also in the fourth quarter. The University of Michigan's consumer sentiment surhas been scaling back expectations for vey slumped in October to the lowest level since January-not a good sign for the Fed's first rate hike. The market fourth-quarter consumer spending. My fear is the temporary nature of the govis expecting only one or two quarterernment's solution will only extend the period of fiscal uncertainty hanging over point rate hikes by the end of 2015. our economy. While consumer and business confidence will likely rebound a bit This likely means lower interest rates in the months ahead, the bounce-back may not be vigorous. next year-welcome news for those The budget deal did arrange for a bicameral budget conference committee to who still want to refinance mortgages work on a longer-term budget solution by Dec. 13. The committee will be led or buy new houses or cars. n by Senate Budget Committee Chair Patty Murray (D-Ore.) and House Budget Committee Chair Paul Ryan (R-Wis.), but will include 29 members, includScott Anderson is senior viceing the entire Senate Budget Committee, four House Republicans, and three president and chief economist for House Democrats. Nine members of this committee voted against the comproBank of the West, San Francisco, mise. Still, at least the two parties and the two houses of Congress are talking Calif., and chairman of the ABA about bigger-picture solutions to our debt and deficit problems. Economic Advisory Committee. 8| ABA BANKING JOURNAL | November 2013

Table of Contents for the Digital Edition of ABA Banking Journal - November 2013

Chairman's View
Editor's Column
The Economy
Picture This
Bank Notes
Will farmland prices hold up?
Tech Topics
What you do, amplified
Inside Farmer Mac
Meeting the challenge of identity theft
Compliance Clinic
Compliance Inbox
Pass the Aspirin
ABA At Your Service
First Person

ABA Banking Journal - November 2013

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