U.S. budget watchdog warns inflation, recession at tipping point

One federal budget watchdog warns that the U.S. economy has reached a tipping point as it tries to tame inflation, avoid recession and battle bank-run contagion fears. This is one of those moments that could be a tipping point, and all policy solutions that aren't ideal are a result of previous bad policies, said Maya MacGuineas, Chair of the Committee for a Responsible Federal Budget, on Mornings with Maria Tuesday. The economic expert said past policy mistakes between government spending and Federal Reserve action have led to a really dangerous moment in the markets: politicians are fighting inflation and avoiding a recession, while the recent insolvency of Silicon Valley Bank seems to have spread to other regional banks.

Tuesday morning, the Labor Department reported that the consumer price index showed that inflation was uncomfortably high in February, while the price for everyday goods, including gasoline, groceries and rents, rose 0.4% from the previous month and 6% annually.

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. We are already stuck in a very difficult situation right now, between fighting inflation and avoiding recession. That tricky balance act 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 hawkish stance on rate hikes, MacGuineas argued, could hurt Americans bottom lines.

The more the Fed takes action to fight inflation, the more that can damage our overall budget situation. The president said that the budget that he came out with was a budget that really acknowledges that there's almost no way to get on top of this problem, it's so large right now.

Biden's budget, estimated to increase the national debt from $24.6 trillion to $43.6 trillion over the next decade, doesn't get the economy any close to balanced. The budget sets a path towards record national debt, rising from 98% of GDP at the end of 2023 to 106% by 2027 and then 110% by 2033, according to the data from MacGuineas Committee for a Responsible Federal Budget released last week.

If we delay action, there will be massive benefits cuts, she warned. This budget doesn't acknowledge how severe our fiscal problems have become. I think we need to stop spending and we need to focus on saving before we do anything else. I think we need to start by going in the direction of reducing the deficit, like his budget has asked for it. The budget watchdog said there was bipartisan effort from lawmakers, noting she sounded good talk from both sides, but there was no overlap. Fiscal responsibility is always easy when it comes to talking points, but policy changes are going to have to be very significant, according to MacGuineas. They're going to have to involve compromise from both sides because they need real savings to get them done.