If the eurozone did not exist, the world would be focused on America’s recovery problem. The US is not on the brink of a potential downward spiral – at least not until Washington arrives at its self-imposed “fiscal cliff” later this year. But, by any measure, America is in the middle of a partially self-inflicted growth crisis. Since the politicians are part of the problem, all eyes are once again turning to the Federal Reserve.
The Fed has been down this road before. Last month’s jobs report confirmed that the US recovery is stalling for the third year in a row. Having added 226,000 jobs a month in the first quarter of 2012, that has slipped to just 75,000 a month since March. Unemployment is likely to remain above 8 per cent until 2013. Growth is also slowing with many forecasters anticipating gross domestic product will be unlikely to exceed last year’s paltry 1.9 per cent.
With long Treasury bond yields hovering at about 1.5 per cent, the case for fiscal stimulus is as strong as ever. Since 2009, state governments have shed more than 600,000 employees. Much of America’s infrastructure has continued to deteriorate.
Alas, Congress remains stubbornly unpersuadable, which means the Fed is still the only game in town.
In June, Ben Bernanke, the Fed chairman, made clear that the Fed would take “additional steps” if the labour market continued to deteriorate.