A leading government economic analyst said Tuesday that global financial markets’ chaotic start to the week have not thus far impacted his office’s outlook.
Congressional Budget Office Director Keith Hall described the worldwide dip in stock market indexes that occurred Monday as routine over the long-run. He made the remarks during a press conference announcing updated CBO data that is predicting the federal deficit will this year be less than previously believed by $60 billion.
“With respect to the stock market, I’m not sure we would change anything yet,” Hall said. “Fluctuations in equity markets are fairly common. I think something like a trillion dollars worth of wealth has been lost at least up until yesterday. But that doesn’t typically translate right away into changed behavior by consumers or businesses.”
“The fact that it happens and the fact that there doesn’t seem to be typically reaction to how people consume or how businesses operate leads me to think that it’s still okay,” he added. “Economic fundamentals at least so far haven’t been changed so I don’t feel too worried about it.”
Hall made the remarks in response to a question that noted the CBO’s updated projection was finalized in early July. He noted that short-term deficit projections are now smaller and that the debt is now expected to increase by $20 billion less annually over the next decade, but said long-term concerns haven’t significantly changed.
Hall said, if anything, data released since June indicate economic growth this year could be stronger than Tuesday’s forecast anticipated, despite the market turmoil that occurred the previous day. He also noted, however, that growth could be “a little bit weaker [than predicted] for the next two years.”
Whatever caused the greater cash flow to Washington revealed Tuesday, Hall could not explain it.
“We don’t know,” he said in response to a reporter’s question. “It’s what I sort of call a ‘technical adjustment.’ It’s not because of the slower growth, it’s just because tax revenues seem to be higher.”
The updated report means that the CBO now expects the US government to hit its debt ceiling sometime “between mid-November and early December.” In March, the body had said that “Treasury would probably run out of cash in October or November.”
On Monday, White House Press Secretary Josh Earnest said Congress’ failure to pass a long-term budget well before Treasury approaches the debt ceiling could stoke investor anxieties that have flared up this week.
Before Earnest made the comments, stock markets around the world had been battered by a mass-sell off sparked by fears about China’s economic health. The Shanghai index ended the trading day down by 8.5 percent. Major European and American indexes fell by between 3.56 percent and 5.7 percent. The White House’s chief spokesperson, however, insisted that financial reforms enacted since President Obama took office have left the US more capable of withstanding economic shocks since the global financial collapse of 2008. On Tuesday morning, investors went on something of a buying spree, reversing some of the losses suffered Monday in Europe and the US. By the late afternoon in New York, however, the Dow Jones Industrial Average and the S&P 500 and Nasdaq composite indexes had all fallen to below what they were worth when markets opened that day.
Whatever the impact of Dodd-Frank financial reforms on market stability, Hall said that higher levels of government debt may hinder the US government’s ability to respond to any economic crisis in the future.
“As debt continues to grow, it handcuffs the government if we go into another recession, about what they can do policy-wise to work through it,” he said. “To give you some idea of how important that is, I’ll repeat something that you’ll probably know but keep in mind that debt-to-[Gross Domestic Product] ratio in 2007 was something like 38 percent of GDP. We’re now up to 74 percent after the Great Recession. That’s a huge change.”
UPDATE: By the time this article was initially published on Tuesday afternoon, major stock markets in New York had increased in value to neutralize about half of the losses they had collectively suffered on Monday. It was updated after US markets closed on Tuesday afternoon to better account for the day’s trading activities.
