Economist: Fiscal Cliff Not As Steep As Stated
The headache some folks wake up with on
“How the fiscal cliff is resolved has a bearing on both near-term growth and long-term debt,” says
But that so-called cliff is neither as precipitous nor as close as some would have us believe, Wilkerson said during the third annual
He said recent descriptions of the mandatory tax increases and spending cuts scheduled to go into effect in 2013—f ailing congressional action before year’s end—as more slope than cliff makes sense. Not all of the mandated cuts will occur on
“The process will roll out throughout 2013,” Wilkerson said, “with the biggest hit occurring in the second quarter.”
Uncertainty about how
“Economic forecasters generally assume the fiscal cliff will be avoided without recession,” he said. But he also noted that if all the tax increases and spending cuts scheduled occur, GDP could drop by 4.5 percent.
Over the long-term, however, allowing the fiscal cliff to play out, accepting both the tax increases and the spending cuts, would reduce the budget deficit over the next 10 years.
“Avoiding fiscal changes,” Wilkerson said, “means further increases in the national debt.”
Some areas, such as unemployment, likely will get better, Wilkerson said. “At its September meeting the Federal Open Market Committee, the branch of the
He said some improvement in the U.S. economy has already begun but at a slow pace. “The U.S. economic growth has been moderate,” he said, “as European and political concerns remain high. U.S. gross domestic product (GDP) rebounded somewhat in quarter three but business investment and exports weakened.”
Sluggish growth is typical
This sluggish growth is typical “coming out of a financial crisis. Consumer spending is rising but not quickly.”
Early fourth quarter data suggest “moderate U.S. growth to continue.” Residential housing has improved but “recovering at a low level.”
Financial stress in
Inflation rate is expected to remain “at or near its long-term target through2015,” Wilkerson said. The Fed’s inflation target is 2 percent.
More than a third of FOMC members disagree on the timing of monetary tightening. Wilkerson said some expect tightening to increase in the next few years with interest rates moving up to 4 percent. Others expect rates to remain close to zero until unemployment gets close to normal.
Wilkerson said Oklahoma’s economy has fared better than the national economy and “has outperformed just about every other state since last year. Many areas of the state have returned to full employment and most industries are growing. However, energy activity has begun to slow; the fiscal cliff looms; and the drought lingers.”
Job growth rate is widely variable across the country. With a 2.5 percent growth rate
The defense industry is also important to
“Growth in energy jobs slowed in quarter three but other industries posted positive growth.”
Livestock producers, however, will continue to be “squeezed by high feed costs.”
For lenders, agriculture remains a good bet, he said. ‘Ag loans are more current than any other type of loan at
Regional farmland prices continue to surge “and have accelerated in Oklahoma.”
Wilkerson said recent U.S. economic growth “has been moderate, with low inflation.” The fiscal cliff and concerns over the European economic situation continue to weigh on economic activity.
The economy, for
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