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Sunday, January 15, 2012

Wells Fargo's Monthly Economic & Financial Commentary- January 2012

- Our outlook calls for moderate GDP growth of 2.1 percent in 2012, with a slower pace at the start of the year in response to the 3.7 percent expected gain during the fourth quarter.

. Consumer spending will likely slow in the first quarter of this year to 1.4 percent after a strong gain of 2.8 percent in the fourth quarter, while business fixed investment is expected to rise six percent or more in the first half of this year as equipment and software and structures continue to improve.

- Inflation should moderate in the year ahead, as the employment cost index will likely remain at 2.1 percent for the second consecutive year and producer prices are expected to rise 2.5 percent in 2012 after a gain of 6.0 percent last year.

- We estimate that any additional quantitative easing by the Federal Reserve would take place through a purchase of mortgage-backed securities, and therefore work primarily to provide liquidity while lowering the mortgage rate.

. The 10-year Treasury note is expected to gradually rise and end the year at 2.3 percent.

- Concerns for 2012 include the potential for lower exports as a result of a recession in Europe, risks associated with new proposed policies in an election year, and tensions with Iran which could inflate the price of oil and limit growth.

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