ECONOMIC ACTIVITY

U.S. budget deal would boost economy in 2013, Zandi says

BLOOMBERG FILE PHOTO/ANDREW HARRER
"We've got to nail this down; uncertainty is killing us," Mark Zandi, chief economist at Moody's Analytics, told U.S. lawmakers at a Joint Economic Committee hearing in Washington D.C.
Posted 12/6/12

WASHINGTON - The U.S. economy will fall into “severe recession by the spring” unless Congress lessens the tax increases and spending cuts set to begin in January, said Mark Zandi, chief economist at Moody’s Analytics.

“We’ve got to nail this down; uncertainty is killing us,” Zandi told U.S. lawmakers today at a Joint Economic Committee hearing in Washington.

House Speaker John Boehner, an Ohio Republican, and President Barack Obama are at a standoff over how to avert the so-called fiscal cliff, more than $600 billion in tax increases and spending cuts. Unless Congress acts, taxes on income, capital gains, dividends and estates will rise and automatic federal spending cuts, known as sequestration, will take effect in January.

If Congress were to “kick the can down the road” by extending the current tax-and-spending policies, Zandi predicted the U.S. would lose its Aaa rating because “it would signal that the political will is lacking to put the nation on a sustainable fiscal path.”

A deal that raises the federal debt ceiling and “credibly promises long-term fiscal sustainability,” by contrast, would “quickly brighten” the U.S. economy, Zandi said in prepared testimony for the committee. His testimony said in that case, real gross domestic product could rise by 2 percent in 2013 and 4 percent in 2014 and 2015.

He predicted the jobless rate will fall below 6 percent by mid-2016 if a deal is reached.

“If we nail this down, we’ll be off and running,” Zandi told lawmakers.

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