Two Federal Reserve officials warned Tuesday that the U.S. could be heading for a “fiscal cliff” at year’s end if mandated tax increases and spending cuts are implemented.
Charles Evans of the Chicago Fed called the cliff a “big uncertainty” while Atlanta Fed President Dennis Lockhart said there could be a “financial shock” if markets begin to anticipate that Congress and the White House do little to address this situation.
The expected tax increases and spending cuts were triggered when a congressional “super committee” failed to come up with a way of closing the federal budget deficit.
Both Fed officials spoke during the Milken conference in Los Angeles. Earlier Tuesday, on CNBC, both agreed the slowing U.S. economy is disappointing, but differed on the need for continued stimulus.
“I’d like nothing better than to start raising rates before late 2014 on the strength of a stronger economy,” Evans told Squawk on the Street.
Noting there’s “tremendous room” for more accommodation, the Chicago Fed chief said that “more liquidity would be helpful. It would ratify the idea that [Fed] policy is going to be accommodative for a very long time to get things going. Look, we might get lucky in the sense that … the channel opens up and we get a greater lift in the economy.”