Moody’s chief economist told a US Senate panel that the Republican plan will “significantly increase” the chances of recession.
A Republican plan to cut federal spending in exchange for lifting the US government debt ceiling would cut jobs, slow economic growth and “significantly increase” the likelihood of a recession, Moody’s Analytics chief economist told Thursday. a Senate committee.
Mark Zandi told the Senate Budget Committee that US GDP growth would be 1.61 percent in 2024 if the Republican plan were enacted, compared with 2.23 percent otherwise, and it would generate 790,000 fewer jobs.
Republicans are pressuring Democratic President Joe Biden to agree to spending cuts as a condition of raising America’s self-imposed debt ceiling of $31.4 trillion. Biden and his fellow Democrats insist that Congress should unconditionally raise the cap.
The standoff is already spooking investors: On Thursday, the federal government paid the highest interest ever on a one-month debt issue.
Zandi said passing the bill passed by the Republican-controlled House of Representatives without changes would come at a high cost to US economic growth. But he also said failure to prevent a default would be “catastrophic,” echoing the assessment of many other analysts and economists.
Zandi said the government would likely run out of money to pay its bills by June 8 if Congress didn’t act, though he said it could happen anytime between June 1 and on August 8. US Treasury Secretary Janet Yellen warned the Republican Speaker of the House kevin mccarthy earlier this week in a letter that the federal government could hit its spending cap by June 1 if Congress doesn’t increase the debt ceiling.
“We need to end this drama as quickly as possible. If we don’t, we will enter a recession and our fiscal problems will get even worse,” Zandi told the committee.
The hearing is the first of several planned by Senate Democrats, who say legislation passed in the House last week on a party-line vote would undermine child care, education and other government programs.
Republicans have said the cuts are necessary to curb the growth of US debt, which is expected to rise steadily in the coming years as an aging population drives up pension and healthcare costs.
That would require the government to devote an increasing share of revenue to interest payments on its debt, rather than to more productive uses, without taking steps to reduce the annual budget deficit.
Biden will meet with House Speaker Kevin McCarthy and other top lawmakers at the White House on Tuesday. The standoff is worrying investors, who have pushed yields on as much as $650 billion of Treasury securities to all-time highs.
‘Risky and flawed’
Democrats have accused Republicans of taking hostages, but Brian Riedl of the conservative Manhattan Institute said Congress in the past often used maximum debt terms to reach budget deals.
“If we don’t want lawmakers to use this risky and flawed process to address growing deficits, then let’s debate and propose a better budget process,” he said.
The center piece of the House Republican plan it would cut a broad swath of government spending by 8 percent next year and limit its growth to 1 percent each year after that.
The Republican plan does not specify what spending would be cut, but some party figures have said they would protect military and veterans programs. Democrats said that would force average cuts of 22 percent to national programs like education and law enforcement, a figure that top Republicans have not disputed.
Biden has proposed raising taxes on the wealthy to reduce budget deficits, but Senate Democrats have not tabled a proposal of their own.