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Moody’s Mark Zandi Lowers Expectations for Economic Growth

""Moody's Analytics'"":http://www.moodysanalytics.com chief economist Mark Zandi has lowered his expectations for the growth of the U.S. economy into 2012. He says GDP will grow 2.6 percent next year and unemployment will likely remain high.

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""We expect the U.S. economy to perform a bit better in 2012, but this will depend on policy decisions coming out of Europe and Washington,"" Zandi said.

""The Europeans are fighting to keep the euro area together, while U.S. policymakers are struggling to find an appropriate degree of fiscal austerity,"" Zandi continued. ""While we believe these issues will be resolved in a reasonable way, there is a significant degree of uncertainty associated with this assumption.""

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According to Zandi's macro outlook report, how the U.S. economy performs going forward will depend on what Congress and the administration do about the reduced payroll tax rate and unemployment insurance benefits.

Unless policymakers act, he says federal fiscal policy will shave 1.7 percentage points from 2012 real GDP growth as a number of tax and spending measures expire.

The U.S. also faces the prospects of significant repercussions from the European debt crisis, according to Zandi.

Despite unnerving price swings, U.S. stock prices have not really moved forward since Europe's problems emerged and Zandi says, extreme pressure on financial systems as a result of the crisis threatens the availability of credit on both sides of the Atlantic.

""Besides real GDP growth of 2.6 percent, we also expect stubbornly high unemployment, which will lead to low inflation and interest rates,"" Zandi explained.

Moody's Analytics expects core consumer price inflation to stay well below the Federal Reserve's implicit 2 percent target.

Long-term interest rates will move higher by the end of 2012, according to Zandi. But if they rise too quickly, he expects the Fed will likely launch another round of quantitative easing.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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