Sandy's Aftershocks Hit the Economy

The Wall Street Journal reported this week that the U.S. economy expanded at its fastest rate since 2011 in the third quarter of 2012. The nation's gross domestic product grew at a revised annual rate of 2.7 percent between July throughout September. This rate was revised up from the predicted 2 percent due to growing inventories, strong federal spending, and more consistent exports - all good signs that the economy is growing. 

Unfortunately, this rate will most likely decline in the fourth quarter because of the destruction caused by super-storm Sandy which struck the Northeast shoreline late October. Sandy's force closed many businesses in the Northeast and demolished others. Dallas Fed President, Richard Fisher, says despite the negative effects from Sandy "there's a rebuilding process and we'll have a positive impact in subsequent quarters." 

In addition to Sandy's backlash, fears of the fiscal cliff - a slew of tax increases and spending cuts on track to hit in January - are still looming. Congress has yet to come to up with a solution to attack this fiscal cliff which, if put into action, could send the nation into another recession causing businesses and consumers to hold back spending. 

Federal Reserve chairman Ben Bernanke announced this week that the Fed will enact another round of bond buying in 2013 as a buffer for the looming fiscal cliff. Fed officials have been encouraged by the increased housing market and decreased unemployment rate, but the fiscal cliff is leaving uncertainty in the markets which is stunting economic growth. The Fed acknowledges that these programs aren't as affective as they were during the financial crisis but they do help, especially in the housing markets, and these programs come with manageable risk. Hopefully Congress can come up with a powerful solution to this fiscal cliff which will deter the Fed from purchasing more bonds. This will help businesses and consumers alike feel more confident with the economy and encourage them to spend more.