Perspectives from Above the Noise – Week of January 7, 2013

3 Stories in the global economy that should not go un-noticed

Today marks the first entry in our new weekly column focusing a critical eye on 3 key items which we believe are worth taking note of. Each week we will focus on these news stories as a means to highlight what we feel to be important news from the global economy to your personal economy.

Here are the 3 stories this week that rose above the noise:

End of Stimulus? What's Behind Fed's Surprise Statement

In a surprise move, several Federal Reserve members said they want to end quantitative easing this year. The news sent ripples through financial markets last week when minutes of the Fed’s December 12 policy statement showed several members would like to stop the bond-buying program before the end of 2013.

The Federal Reserve’s asset purchases currently total $85 billion per month. While most economists and observers expect Fed policy to remain exceptionally accommodative through at least 2013, the comments are less “dovish” than expected and will likely increase the bond market’s attention to key economic data as the year progresses.

Wages a Balm for U.S. Workers Facing Payroll-Tax Shock
U.S. Congress agreed on a permanent extension of Bush-era income tax cuts for 99 percent of Americans last week, but most Americans will see their paychecks shrink in 2013 with the expiration of the temporary payroll tax cut that was in effect over the previous two years. The payroll tax that funds social security will increase to 6.2 percent from 4.2 percent, creating up to a $100 billion drag on the U.S. economy in 2013.

However, accelerating wage growth and decreasing gasoline prices may help offset the increased tax burden on American consumers. Additionally, rising home prices and four years of stock market gains are helping the American consumer gain back wealth that was lost in the 2008 market crash.

The Best Way to Debt Reduction? You Choose
As 2013 begins, the next major event the market has its eye on is the debt ceiling. MarketWatch’s Chief Economist Irwin Kellner gives a helpful overview of the battle that is likely to ensue between Democrats and Republicans. Much like the fiscal cliff, the cores of both parties are at opposite ends of the spectrum. Republicans favor cutting entitlement spending while Democrats favor raising taxes. In each case, these are positions that the opposing party would consider off limits. As it stands, it looks like we are in for another fight until the last minute and a deal that just gets us through to the next major deadline.