Weekly Economic Summary 11-21-2012 - fiscal cliff
It’s important that negotiations are beginning between President Obama and Congressional leaders regarding the looming fiscal cliff our country is facing.
If you’re wondering what the fiscal cliff is about, here are the main issues. As we head into 2013, tax cuts for individuals and various tax breaks for businesses are due to expire, taxes pertaining to President Obama’s health care law will begin, spending cuts enacted by Congress as part of the debt ceiling deal of 2011 will go into effect, and long-term jobless benefits will expire.
The Congressional Budget Office (CBO) estimates that if all of these items occur, it could take an estimated $600 billion out of the U.S. economy in 2013, pushing the country into a recession. Given that Europe is officially in a recession for the second time in four years, it’s especially important that our leaders take action now before our economy follows suit.
Heading into 2013, another important issue to monitor is inflation. Remember that one of the goals of the Fed’s latest round of bond buying (known as Quantitative Easing or QE3) is actually to create inflation. While the latest Producer Price Index and Consumer Price Index reports showed that inflation remained tame at the wholesale and consumer levels in October, inflation can manifest and get out of hand quickly.This is significant because inflation has a negative effect on fixed investments, like bonds (and therefore home loan rates, which are tiedtomortgage bonds).
What does this mean for home loan rates? Bonds and home loan rates should continue to benefit from the continued uncertainty in Europe, and the uncertainty here regarding the fiscal cliff, as investors will likely continue to see our bond market as a safe haven for their money. But inflation is a very real threat to home loan rates, and we need to keep a close eye on it in the weeks and months ahead.
What does this mean for home loan rates? Bonds and home loan rates should continue to benefit from the continued uncertainty in Europe, and the uncertainty here regarding the fiscal cliff, as investors will likely continue to see our bond market as a safe haven for their money. But inflation is a very real threat to home loan rates, and we need to keep a close eye on it in the weeks and months ahead.
Author Bio: Rob Alley earned a bachelors degree at Virginia Tech, in Blacksburg, VA in Biology. Rob Alley consults with homeowners regarding Real Estate transactions and speciliazes in listing and selling Charlottesville Real Estate. Realtor/Owner of Virginia Real Estate Solutions at RE/MAX Assured Properties
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