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Just how badly did Congressional dysfunction manage to hurt the US economy? Macroeconomic Advisers is out with a report prepared for the Peter G. Peterson Foundation, a nonprofit dedicated to deficit-cutting, that tries to quantify Washington’s recent failures. Since 2010, the report finds, a combination of spending cuts and uncertainty have trimmed America’s annualized GDP growth by as much as 1 percentage point. That doesn’t include the impact of the 16-day government shutdown, which S&P says could take $24 billion out of the economy.
Paul Krugman thinks Macroeconomic Advisers understates the damage: the expiration of the payroll tax cut and cuts to unemployment benefits, he says, have forced lower-income Americans to cut back on spending. Brad Plumer is also skeptical, saying that the Macroeconomic Advisers report doesn’t fully take Fed policy into account and relies on a controversial measure of uncertainty.
Sudeep Reddy has a broader look into some of the other economic damage estimates. S&P cut its projections for fourth quarter economic growth to 2% from 3%. The market for short-term US debt has also been a bit rattled, Menzie Chinn writes. IHS, a research firm, estimates that Federal debt costs will rise about $114 million just in this week’s Treasury bill auctions alone. 2011’s debt ceiling standoff raised Treasury’s borrowing costs by some $1.3 billion, the GAO found.
The last few weeks of may have longer-term effects as well, Bloomberg reports. Applications could be delayed for everything from veterans’ health benefits to visas for foreigners, one shutdown expert said, and checks to government contractors could take weeks to send out. The Washington Post has a nice map of reader responses to the government shutdown.
The FT reports that a small taper in the Fed’s asset purchasing program could still happen in December. Still, David Gaffen argues that the shutdown and debt ceiling standoff has very much changed the Fed’s plans over the next few years:
The Federal Reserve’s trajectory for its monetary policy has been shifted dramatically; those clamoring for an end to the extraordinary stimulus that has the Fed now owning 35 percent or so of the Treasury market won’t be seeing it this year – in fact, it may not come for several months into 2014 either. Chances of an interest rate hike have been pushed all the way out to April 2015.
The Fed may also be contending with problematic data: the shutdown will affect the accuracy of inflation stats for some seven months, the Cleveland Fed says. Even October’s monthly jobs report data could be flawed, the WSJ writes — the BLS only has two weeks of this month in which to gauge America’s labor market. – Ryan McCarthy
On to today’s links: