Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro . White House officials are facing a hard post-election truth: If the U.S. economy goes into a recession next year, the government may be hard-pressed to help much. The constraints are twofold, Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, tells your MM host . Rising interest rates are sending the government’s debt costs soaring, eating up a bigger share of the federal budget and adding to its bottom line. Despite a record decline in the deficit in fiscal 2022, net interest payments climbed to $475 billion, a 35 percent increase. And they’re expected to keep rising. It’s primarily a political constraint: Even if there’s still healthy investor appetite for U.S. debt, the rising costs will no doubt make it harder for lawmakers to get on board with more borrowing, Goldwein said. The second constraint is economic: A big burst of deficit spending — the kind policy makers have deployed in previous downturns to cushion the economy — could fuel inflation, making it harder for the Federal Reserve to tame price pressures. From your MM host: “As a practical matter, it means government spending, from big agenda items to possible support for struggling households, would need to be offset with tax increases or spending cuts, not more borrowing, a colossal hurdle even when the president’s party controls both chambers of Congress.” White House officials said they’re not concerned — the president has always proposed that his policies be paid for, and nothing has changed that view. They also don’t see the U.S.’s fiscal space, or borrowing capacity, as having narrowed much, if at all, in the long run. But what will markets think? Planned tax cuts for the wealthy, announced by U.K. officials last month, prompted a market meltdown that forced the Bank of England to step in to buy government bonds and led to Prime Minister Liz Truss resigning just six weeks into her tenure. “The lesson of the U.K. is, markets are going to be much more vigilant about any fiscal plan in this environment, particularly for countries that have a large debt stock that are potentially going into an economic downturn and are seeing interest rates move substantially higher,” said Daleep Singh, chief global economist at PGIM Fixed Income and a former deputy director of Biden’s National Economic Council. “You have to be really careful.” IT’S MONDAY — We’re rested and ready for GDP, PCE and whatever other acronyms this week throws our way. Have a tip, story idea or feedback to share? Let us know: kdavidson@politico.com and ssutton@politico.com .
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