"It seems that if the Washington politicos fail to reach a resolution on preventing a fiscal crisis, the biggest loser will be the FED. The U.S. central bank is on record as pushing for continued monetary ease as long as unemployment remains unexpectedly high. The recent definition as forwarded by some Fed Governors and Presidents is around the 6.25% rate of unemployment. If the fiscal cliff is realized, projections are for the jobless rate to rise to between 9.5 and 10.0%. The question for the global financial markets will be: What is the FED‘s response going to be in an effort to counteract the renewed contraction in the U.S. economy?
"The problem for the FED will be made more difficult because the realization of the “fiscal cliff” will, by definition, mean less of a U.S. budget deficit and with that less borrowing by the Treasury. The lowered amount of borrowing will result in less Treasury bonds and notes for the FED to buy as the SOMA (system open market account) is virtually devoid of most debt less than three years. The market is already anticipating that ..."