ANCHOR (OFF-CAMERA) ENGLISH SAYING:

So the consumers are in pretty good shape starting this year?

GUS FAUCHER, SR. MACRO ECONOMIST, PNC, (ENGLISH) SAYING:

They're in decent shape, certainly. Consumers have done a great job of paying down their debt. So if we look at financial obligations as a share of after tax income, that's as low as it's been in 30 years. Consumers have paid off a lot of debt. They've refinanced their debts at lower interest rates. So they do have a little bit of room to increase their borrowing this year and so that's going to be a support to consumer spending. Obviously with the big gains we've have in stock markets, with higher house prices, consumers are wealthier and so that's going to support spending as well.

ANCHOR (OFF-CAMERA) ENGLISH SAYING:

Will house prices continue to rise this year?

GUS FAUCHER, SR. MACRO ECONOMIST, PNC, (ENGLISH) SAYING:

They will continue to rise but at a slower pace. The recent gains, double digit gains that we've seen simply aren't sustainable given weak income growth. Higher mortgage rates will be a little bit of a drag on the housing market so what we'll see is house price grows slow so that by the end of 2014 maybe house prices up 5% year over year down from their current double digit pace. That's good because it's sustainable over the longer run but it still means gains in household wealth and that will be enough to support consumer spending.

ANCHOR (OFF-CAMERA) ENGLISH SAYING:

And of course big news with the Federal Reserve; we have Janet Yellen who will take over the Fed. How aggressive will she be in terms of the tapering of bond buying purchases? Do you see much change to monetary policy this year?

GUS FAUCHER, SR. MACRO ECONOMIST, PNC, (ENGLISH) SAYING:

No, I don't see a big change. I think Dr. Yellen will support the policies that Chairman Bernanke now has in place. We'll likely see the Fed continue to reduce its asset purchases gradually over the course of 2014. So, the Fed announced that they're going to reduce from $85 billion per month to $75 billion per month starting in January. I think they'll probably wrap those asset purchases up by the end of this year so that will put upward pressure on longer term rates. We'll see them continue to increase rates. But short term rates aren't going anywhere. They're going to stay close to zero for another couple of years. The Fed reiterated that when they made their statement in December. And so I think Dr. Yellen is going to follow the same policies that are currently in place, which will allow for a gradual normalization in interest rates, but it's going to take place over a period of years.

ANCHOR (OFF-CAMERA) ENGLISH SAYING:

Alright. So far all of this is sounding a little too good to be true. What is the big wildcard for the economy this year? What do you see on the horizon as a possible worry?

GUS FAUCHER, SR. MACRO ECONOMIST, PNC, (ENGLISH) SAYING:

Certainly, there's the possibility for further fiscal restraint at the federal level. If we see big spending cuts, I think that could be a drag on growth in 2014 like it was in 2013. And then Congress also needs to increase the debt limit. So I mean if Congress decides that they're going to play game with the debt limit in February, I think that could be a big problem for the US economy. So I think fiscal policy is going to remain a wildcard like it has been over the past few years.

ANCHOR (OFF-CAMERA) ENGLISH SAYING:

How about interest rates spiking? Is that a worry?

GUS FAUCHER, SR. MACRO ECONOMIST, PNC, (ENGLISH) SAYING:

Certainly that's a concern. I think the Fed is going to be very cautious about that. They'll be very careful with their language so that markets know what to expect. But if markets overreact and that's certainly a possibility, we could see interest rates move higher. That would obviously be a concern for equity markets. So we could see a correction in the stock markets. And we will have some uncertainty about Fed policy, but I think they'll do their best to try to alleviate that and make sure that rates rise in an orderly fashion.