Connect with us

Politics

Government shutdown: Trump economist Hassett, US GDP could go negative

Published

on

Kevin Hassett, the chair of President Donald Trump’s Council of Economic Advisers, offered a frank assessment about the possible cost of the ongoing government shutdown, warning the closure could result in a mess for the US economy.

Hassett told CNN in an interview on Wednesday that US GDP growth “could” go negative for the first quarter if the partial federal government shutdown lasts through March, a warning some Wall Street economists have also issued.

“If it extended for whole quarter and given the fact that the first quarter tends to be low because of residual seasonality, then you could end up with a number close to zero,” Hassett told CNN.

But Hassett argued that GDP would likely bounce back in the second quarter once the government reopens and workers receive back pay. Some 420,000 of the 800,000 federal workers not currently getting paid automatically will get back pay when the government reopens, and Congress passes a bill last week to give the 380,000 furloughed workers back pay as well.

Read more:The warnings are getting starker: Trump’s government shutdown is becoming catastrophic for the economy»

Beyond the GDP concerns, Hassett brushed off worries that the political fight over the shutdown could lead to a downgrade of the US’s credit rating. Fitch, one of the main credit ratings agencies, warned that the shutdown could impact the country’s rating.

“Well, I don’t think a downgrade is in play, but I think we’re in a world where we’ve had 21 government shutdowns since the 1970s and this brinksmanship goes on and on,” Hassett said. “But I don’t think there’s any risk given how strong the economy is we’ll be downgraded.”

S&P downgraded the US credit rating during the fight over the debt ceiling in 2011. It’s the only downgrade of the US’s credit rating by a major agency.

Read more: T he government shutdown threatens the US with a credit-rating cut for only the 2nd time in history»

The warning, though hedged, comes as more and more economists estimate that the government shutdown’s impact on GDP is growing. Even the White House’s own model was updated to show that the shutdown will shave off 0.13 percentage points from first quarter GDP every week. This was an increase from previous estimates after the White House factored in the impact on federal contractors.

The major concern is that the 800,000 federal workers and tens of thousands of government contractors who are going without pay during the shutdown are not only losing out on wages, but are not spending their wages in the economy.

As the shutdown drags on — and so far it shows no sign of stopping despite being in its 33rd day — more money is missing from the economy and the negative effects grow.

This is likely to produce a drag on overall economic growth. Add on, as Hassett mentioned, the fact that the first quarter is typically weaker due to data calculation issues, and the possibility for negative growth grows.

Continue Reading
Advertisement Find your dream job

Trending