Long Term: Neutral
Market pressures on the Fed are growing, to act as real GDP growth slowed further to a tepid 1.5% annualised growth in 2Q (2.0% in 1Q) on weak consumer spending and disappointing business investment, amid modest signs of improvement in the housing sector. We expect further subpar growth and maintain our 2012 growth estimate of 1.5-2.0%. The euro zone’s lingering debt saga and the US’s looming fiscal cliff should continue to impinge on business decisions. We think the Fed will resort to more monetary easing if the economy stalls much further.