Real Time Economics: Will the Economy Get Another Fiscal Boost?
Wall Street Journal | Mon, Apr 8, 2019
THE GREAT UNKNOWN
One of the big unknowns for U.S. economic growth: federal spending. Lawmakers agreed to cap spending in 2011 as part of a bruising fight over raising the debt limit. Since, they've struck three separate deals—the latest boosted funding nearly $300 billion above the caps. But if Congress doesn’t reach another deal by October, the spending limits known as the sequester would kick back in, reducing discretionary spending by $125 billion, or 10%, from 2019 levels, Kate Davidson reports.
Federal spending has had an important impact on growth in this expansion. In quarters when discretionary spending was contracting, mostly between 2011 and 2014, the economy grew at a 2% rate. When it was expanding, including during the past two years, the economy advanced at a 2.5% rate. The Congressional Budget Office estimates year-over-year economic growth would slow to 1.7% in 2020 if the automatic spending cuts kick in, down from a projected 2.3% in 2019 and 3% in 2018.