As the U.S. economy tries to tame inflation, avoid recession, and battle bank-run contagion fears, one federal budget watchdog warns that it has reached a “tipping point.”
“This is one of those moments that could be some sort of a tipping point, and all the policy solutions as a result of previous bad, bad policies really aren’t ideal,” Committee for a Responsible Federal Budget president Maya MacGuineas said on “Mornings with Maria” Tuesday. “And that’s where we’re stuck right now.”
According to the economic expert, past policy mistakes between government spending and Federal Reserve action has led to this “really dangerous moment” in the markets: politicians are fighting inflation and avoiding a recession, while the recent insolvency of Silicon Valley Bank has seemed to spread to other regional banks.
Tuesday morning, the Labor Department reported that the consumer price index showed inflation remained uncomfortably high in February, and the price for everyday goods including gasoline, groceries and rents, rose 0.4% from the previous month and 6% annually.
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“The point is that when you’re structurally weak, which our economy is now because of the fiscal irresponsibility that we’ve been practicing for so long, anything can set off the problem,” MacGuineas said. “And right now, we are already stuck in a very difficult situation between fighting inflation and avoiding recession. That tricky balancing act just became so much more difficult.”
Federal Reserve Chairman Jerome Powell indicated last week on Capitol Hill that the central bank is prepared to raise rates higher than previously expected in the face of still-hot inflation. The Fed’s hawkish stance on rate hikes, MacGuineas argued, could further hurt Americans’ bottom lines.
“The more the Fed takes action to fight inflation, the more that can damage our overall budget situation. What the president came out with was a budget that really acknowledges there’s almost no way to get on top of this problem, it’s so large right now,” the committee president said.
Biden’s newly-announced budget, which has been estimated to increase the national debt from $24.6 trillion to $43.6 trillion over the next decade, doesn’t get the economy “anywhere close to balanced.”
Data from MacGuineas’ Committee for a Responsible Federal Budget released last week showed the budget sets a path towards a “record” national debt, rising from 98% of GDP at the end of 2023 to 106% by 2027 and then 110% by 2033.
“There will be massive across-the-board benefit cuts if we continue to delay action,” she warned. “This is a budget that really doesn’t acknowledge how severe our fiscal problems have become. So I hope we start by going in the direction of reducing the deficit like his budget has asked for, but I think we need to stop the spending, and we need to focus on the saving before we do anything else.”
The budget watchdog called for bipartisan effort from lawmakers, noting she’s seen “good talk” from both sides, but no “overlap.”
“Fiscal responsibility is always easy when it comes to talking points, but the policy changes are going to have to be very significant,” MacGuineas said. “And honestly, they’re going to have to involve compromise from both sides… they need to come towards each other because they need real savings to get them actually done.”
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FOX Business’ Megan Henney and Fox News’ Lawrence Richard contributed to this report.
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