The debt ceiling deal that was passed last week poses new challenges for the economy : NPR

NPR’s Scott Simon speaks to economist Betsey Stevenson of the College of Michigan in regards to the challenges going through the economic system following final week’s debt ceiling deal.

SCOTT SIMON, HOST:

**** Negotiations went right down to the wire, however final week, President Biden and Congress lastly made a deal to lift the nation’s borrowing restrict. President and plenty of specialists stated the deal prevented financial collapse. Nevertheless, it might nonetheless come at a excessive price. We’re joined now by economist Betsey Stevenson. She served on the Council of Financial Advisers throughout the Obama administration and now teaches on the College of Michigan. Professor Stevenson, thanks a lot for being with us.

BETSEY STEVENSON: It is nice to speak with you.

SIMON: Let’s start with the disaster simply averted. Debt ceiling has lifted, however are there lingering results from, I suppose, what I am going to check with because the brinksmanship (ph)?

STEVENSON: Completely. I imply, the primary and most evident is simply that if you threaten to default in your debt, folks wish to be paid extra once they mortgage you cash. So lots of people in monetary markets are taking a look at what’s taking place, and so they’re saying, I do not wish to be holding Treasury payments which can be going to come back due proper across the time the debt ceiling will get breached. And, you recognize, it might even be that demand all alongside the kind of – what they name the yield curve might be impacted. There are research from the 2011 brinksmanship that confirmed that, mainly, we simply paid extra for our debt due to the truth that there was this new potential risk.

SIMON: And what about the truth that Treasury’s going to be flooding the markets with bonds to attempt to construct up its money once more?

STEVENSON: All of these items begin to have a possible impression and price to taxpayers by way of servicing the debt. However I feel in case you actually wish to take into consideration the – what’s the largest price of this brinksmanship, it is that it is a repeated recreation. I really feel fairly assured that everyone in Congress now is aware of that this can be a recreation value enjoying. You get one thing for it. The Republicans acquired one thing. So I feel we’ll see brinksmanship go on and on and on as a result of we now know that this can be a invaluable leverage that can be utilized to barter.

SIMON: Why is not inflation taking place extra shortly?

STEVENSON: I feel inflation is tough to get down actually shortly. One motive why inflation can linger is – you recognize, lets say you are a restaurant, and also you begin seeing the entire price of your substances going up. And you are like, I am actually having a tough time staying in enterprise with these increased prices, however I am afraid if I cross a few of these prices on to my prospects, that possibly I am going to lose enterprise. And you’re taking your time to kind of really feel out the place persons are at, otherwise you wait till it is a extra pure time so that you can increase your costs.

SIMON: Or I imply – I’ll simply level out, ‘trigger I am positive we have each seen cities with a number of shuttered storefronts. Otherwise you resolve you possibly can’t go on.

STEVENSON: Otherwise you resolve you possibly can’t go on. And so ultimately, one thing is available in to interchange you, and that factor would possibly are available with barely increased costs. We have seen a number of employees who – their wages simply haven’t saved up with inflation. A few of them are going to proceed to get raises to make them complete, to make their wages sustain with inflation. And a few of their employers could find yourself needing to extend their costs a bit of bit. The problem is whether or not that is accelerating – so it is driving additional inflation – or whether or not it is simply slowing the method of bringing inflation down. And, you recognize, I feel there’s lots of people who’re very involved that getting inflation from 4% to 2% is far more pricey than bringing it right down to the place we have presently introduced it down.

SIMON: Some commentators have been predicting a recession for some time now. What’s your sense?

STEVENSON: I feel that the recession fears have been extremely overblown. The truth is, some folks have been calling it a vibecession (ph) as a result of what we’re seeing is, like, skyrocketing numbers of individuals Googling recession. So kind of they really feel like possibly we’re in a recession. However the actuality is that the economic system is increasing, and jobs are being added. That is additionally financial progress. The oldsters on the Federal Reserve are extra frightened that it is too sturdy, not that it is too low. In fact, there’s all the time a risk of a recession. And, you recognize, the Fed might push us right into a recession by overtightening. However thus far, there is no indicators of a recession. And I feel it is turning into more and more unlikely that we get a recession in 2023. However you wish to by no means say by no means.

SIMON: Betsey Stevenson, who’s a professor of public coverage and economics, College of Michigan, thanks a lot for being with us.

STEVENSON: It was nice speaking with you.

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STEVENSON: **

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