Back in the U.S., other factors that could impact recovery include state economies, which face huge deficits and pressure to balance budgets. “The elections brought into power a lot of governors who have said they are going to cut spending, but many will have to raise taxes, which in turn will limit growth,” Brinkmann said.
Interest rates did not go where they were generally predicted last year, Brinkmann noted; rates dropped well below 5 percent before moving back above 5 percent at the beginning of the year. He predicted an increase in mortgage interest rates, although he said he did not expect the Federal Open Market Committee to raise the federal funds rate above the current 0-0.25 percent floor this year.
“We have an expected scenario, in which borrowing demands in Europe drive up rates in the U.S.,” Brinkmann said. “Inflation fears, stoked by energy costs, could drive that increase. The other scenario could result in a repeat of flight to quality, which could lower interest rates. If continued turmoil in Europe, the Middle East, even North Korea, it could trigger the same flight to quality that we saw last year.”
In the U.S., jobs and unemployment continues to be the primary factor in U.S. economic recovery and the speed in which it recovers. Brinkmann noted that job numbers are improving, “though not at the pace we’d like to see.” During the recent recession, many jobs were lost in manufacturing and construction; he said, while some manufacturing jobs have returned, construction job recovery has yet to happen.
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