The shift towards fiscal consolidation is another reason to suspect that the US economic recovery will remain muted. We expect GDP growth to slow from 2.5% this year to 2.0% in 2012. In an environment where fiscal policy is being tightened, perhaps quite aggressively, we doubt the Fed will be in any hurry to tighten monetary policy and we continue to expect official interest rates to remain near zero until at least 2013.
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