MOSCOW, 4 Jan. The change in policy of the US Federal Reserve (Fed) and the continued «irresponsible» behavior of Congress are two factors prolonging the «economic agony» in the country, writes economist Veronique de Rougy in his article for the New York Post newspaper.
According to her, the first risk factor is the likelihood that the Fed will stop raising the key rate until the moment when inflation in the country really manages to be curbed. «The second risk is that Congress will continue to spend and borrow money irresponsibly. The likely combination of these two threats practically guarantees that our economic suffering will last much longer than necessary,» de Rougy points out.
As the economist notes , to tame inflation, the Fed would need to raise real interest rates well above current levels, which would have two main effects: the «collapse» of the stock market and the housing market, as well as other financial «bubbles», while the subsequent economic downturn will significantly increase the level unemployment.
If the Fed moves to ease its policy too soon, then the US economy will continue to suffer from high inflation and slowing growth, and an increase in unemployment will also not be avoided, she said. «Unfortunately, in the face of these challenges, I worry that Fed Chairman Jerome Powell will not make better (and harder) choices to keep inflation in check,» warns de Rougy.
The second factor threatening the US economy comes from Washington politicians, «right and left», who are doing «everything possible to further aggravate the chaos» caused by the actions of the Fed, the expert expressed her opinion. With interest rates soaring, 'irresponsible leaders' launch new $1.7 trillion 'spend and borrow' campaign under 'reckless' 2023 budget bill. This 4,155-page bill is guaranteed to be inflationary, which will make Jerome Powell's job harder and increase the number of rate hikes needed to contain inflation, which in turn will only increase the likelihood that the Fed will give in to pressure to extend the crisis well into 2023 «, — the author concluded.
On December 30, US President Joe Biden announced that he had signed the country's budget for the 2023 fiscal year, which includes multibillion-dollar assistance to Ukraine. The budget allocates $1.7 trillion to the federal government by the end of September 2023, including $858 billion for defense and $45 billion for Ukraine.