The next few monthly jobs reports, including this Friday’s, will be watched especially closely to assess the balance in a rather unusual tug of war that has developed in Washington: between a dysfunctional Congress set on creating headwinds to a slowly-recovering US economy, and a central bank willing to roll out one untested measures after the other in its attempt to steer the economy towards higher growth and more robust job creation.
The “sequestration” is, of course, the latest example of America’s self-made obstacles. This set of blunt budgetary cuts, which automatically went into effect this week due to Congressional inaction, will add another fiscal drag of 0.5 percentage points off gross domestic product in 2013. Coming on top of January’s tax increases and recovering (but still-weak) endogenous growth drivers, this will serve to again limit the annual growth rate of the economy to 2 per cent or less – and do so without involving a rational and durable reform to America’s medium-term fiscal dynamics.
