CBO Warns of Recession

Warnings about the negatives effects of the fiscal cliff continued one day after the election, and comments from both Republicans and Democrats which indicated each was open to budget and tax negotiations. The Congressional Budget Office warned that matters remain as they are, the U.S. could tip into recession, and unemployment could move to 9.1%

In its “Economic Effects of Policies Contributing to Fiscal Tightening in 2013”, the CBO warned:

Substantial changes to tax and spending policies are scheduled to take effect in January 2013, significantly reducing the federal budget deficit. According to CBO’s projections, if all of that fiscal tightening occurs, real (inflation-adjusted) gross domestic product (GDP) will drop by 0.5 percent in 2013 (as measured by the change from the fourth quarter of 2012 to the fourth quarter of 2013)—reflecting a decline in the first half of the year and renewed growth at a modest pace later in the year. That contraction of the economy will cause employment to decline and the unemployment rate to rise to 9.1 percent in the fourth quarter of 2013.

The parties to the negotiations can’t say they were not advised.

Douglas A. McIntyre