Economists generally consider increased government spending to be a short-term boost. That’s because the government is borrowing money to pay salaries, cover health care and provide other services that support consumer spending and economic growth.
American politician, 55th Speaker of the United States House of RepresentativesA national debt ticker at a bus stop Washington, May 22, 2023.
Biden expressed confidence this month that any deal would not spark an economic downturn. That was in part because growth persisted over the past two years even as pandemic aid spending expired and total federal spending fell from elevated COVID-19 levels, helping to reduce the annual deficit by $1.7 trillion last year.
The first back-of-the-envelope analysis of the deal’s economic impacts came from Mark Zandi, a Moody’s Analytics economist. He had previously estimated that a prolonged default could kill 7 million jobs in the U.S. economy — and that a deep round of proposed Republican spending cuts would kill 2.6 million jobs.
“From a macroeconomic perspective, this deal is a small help,” said Jason Furman, a Harvard economist who was a deputy director of Obama’s National Economic Council in 2011. “The economy still needs cooling off, and this takes pressure off interest rates in accomplishing that cooling off.”Economists generally consider increased government spending — if it is not offset by increased tax revenues — to be a short-term boost for the economy.
The deal announced Saturday contains smaller cuts. But the even bigger difference today is economic conditions. The unemployment rate is 3.4%. Prices are growing more than 4% a year, well above the Fed’s target rate of 2%. Fed officials are trying to cool economic activity by making it more expensive to borrow money.
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