Defusing the tax bomb

- Macro viewpoint: Defusing the tax bomb "The dysfunction in Washington could cause a “growth pause” in the fourth quarter. However, we expect the Obama Administration to focus on economic growth in the run-up to the Presidential election."
- Fed watch: Taking their time "With the economy decelerating but not crashing into a double dip or outright deflation, we believe Fed officials are unlikely to rush into renewed QE over the next few FOMC meetings. By January, we expect weak economic conditions will allow Chairman Bernanke to forge a consensus supporting the potential for additional asset purchases."
- Housing watch: Spilling over "The construction industry has shrunk as a share of the economy, but the effects of the housing bust are still being felt. Nearly a third of total job cuts were in housing-related industries and a bulk of the drop in consumer spending was in housing-related goods. Bank repossessions have started to pick up steam and should continue to depress the housing market, and by extension, the economy."
- The week ahead: FOMC meeting and housing data deluge "The main event this week will be the FOMC meeting on Tuesday. We’ll be paying particularly close attention to the FOMC statement for any signs of QE2. Our forecast assumes they resume easing in the first quarter of 2011. Besides Tuesday’s FOMC meeting, the week’s data releases will center on the housing sector. Overall, the data should reflect the depressed state of the housing sector."

Merrill Lynch US Economic Weekly 20100917

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