Congress and the White House may throw a curveball and roll out a tax cut ahead of the midterm elections rather than boost stimulus spending to aid the struggling economy, Harvard University History and Business Professor Niall Ferguson says.
"There is a political dimension here ahead of the November midterms," he told CNBC. "The Democrats need to come up with something before the elections and they could surprise people with tax cuts, not extra stimulus spending."
"Whether it has a significant impact is open to question," Ferguson said. "The U.S. people are worried about debt so anything that increases the deficit could be counter-productive."
The Washington Post reported that the White House is seriously weighing a package of business tax breaks - potentially worth hundreds of billions of dollars - to spur hiring and combat Republican charges that Democratic tax policies hurt small businesses.
Separately, Ferguson told Bloomberg that predictions that the U.S. will suffer a “double-dip” recession are “going too far” and that the world’s largest economy is likely in for a long period of slow growth.
Inflation risks in the developed world, particularly in the U.S. and Europe are limited as an extended period of “very depressed growth” will contain prices, he told Bloomberg.
Global economic imbalances that contributed to the world economic crisis “are back” with some Asian and emerging market economies in danger of overheating while developed countries facing subdued growth.
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