The Federal Reserve will take center stage in Washington this week. When it does, the central bank’s Federal Open Market Committee might be tempted to count out Beltway dysfunction as a threat to the economy and therefore a reason to delay a decision to start cutting back on its $85 billion per month in economy-boosting asset purchases.
After all, the Senate seems likely to approve a budget deal that would set spending levels for the next two years and probably eliminate the threat of a government shutdown.
But the Fed—and the rest of America—should probably think again. The budget deal would certainly be a welcome step away from governing by crisis and could herald a 2014 where the sequester spending cuts are less of a drag on growth. But the deal, should it squeak through the Senate, does not mean Republicans and Democrats in Washington will start toasting marshmallows together and singing “Kumbaya.”
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