A View on the United States from Europe

The recent behaviour of the U.S. economy poses twoconundrums: short-term interest rates are much lowerthan would normally be expected, and the yield curve isflat. These suggest to many European observers thatU.S. economic prospects are not as rosy as often depicted.In particular, deficits in the federal budget and thecurrent account are not sustainable in European eyes;and significant Fed tightening will be necessary, thuscausing a significant deceleration of U.S. growth.JEL Classification E200,E600