Policy uncertainty will persist for some time

Congress has thankfully agreed to reopen the Federal government and raise the debt ceiling, but the short-term fix means that fiscal uncertainty will continue to act as a drag on the economic recovery over the first few months of next year. There are several new potential flashpoints in December, January and February. The uncertainty could persist well beyond that, however, spilling over into the run-up to the mid-term elections next November. It may be a very long time before the economic policy uncertainty index drops back to more normal levels, particularly if those mid-term elections in late 2014 result in another split Congress.