But everything has a window of opportunity, and Bernanke may have missed his. Top Bank of America U.S. economist Ethan Harris, for instance, believes at this point even if the Fed embarks on another ambitious round of bond buying, the number of jobs produced by the economy each month, which jumped in July, could soon slump back down to zero, or close to it. A recent Congressional Budget Office analysis of fiscal policy came to the same conclusion: Even if the Fed acts, other things now matter more. We’re headed for another recession.
The biggest problem is the Fiscal Cliff. Pretty much everyone agrees that at this point, if left in place the mix of tax increases and spending cuts that are set to begin in January will send the economy into recession. If the economy had been growing stronger at this point, that might have not been the case.
Many think that the President and Congress will strike a deal after the election to put off the worst of the tax increases and spending cuts. But Harris thinks that will be too late. He believes companies will cut spending long before that in anticipation of the slowdown.