The U.S. economy does not need a second fiscal stimulus package, instead the government should cut spending over the next two years, according to a survey of business economists released on Monday.
Most economists in the National Association for Business Economics (NABE) semi-annual poll were concerned about the outlook for the U.S. government budget. Also, they doubted health-care reforms proposed by the Obama administration would lower costs while increasing access and maintaining quality.
This is one of the fastest-moving and most controversial economic policy environments we have experienced in a generation, said NABE president Chris Varvares. The more vexing policy challenges about which there is less agreement are federal health-care ... budget policies.
The government early this year stepped in with a $787 billion package of spending and tax cuts to break the worst recession since the Great Depression of the 1930s. Separately, it bailed out banks to prevent the financial system from collapsing.
Those actions left the economy saddled with a $1.58 trillion budget deficit in fiscal 2009, and a shortfall of about $9 trillion between 2010 and 2019.
The ballooning budget deficit is causing alarm and feeding into opposition to President Barack Obama's central policy priority of overhauling the U.S. health-care system, whose price tag is $1 trillion.
While economists in the NABE survey acknowledged that the stimulus package had helped to brake the pace of the economy's decline in the second quarter, only 35 percent viewed fiscal policy as being about right.
Half of the respondents saw fiscal policy as too stimulative. About 266 members took part in the poll which was conducted between August 3-18. The U.S. economy contracted at a 1.0 percent annual rate in the second quarter after collapsing 6.4 percent in the first three months of the year.
Fully 76 percent do not believe a second stimulus package is needed. Three-quarters responded that they would like to see fiscal policy become more restrictive over the next two years, but only 28 percent expect that it will be, the NABE said.
In fact, the largest share, nearly 42 percent, expects fiscal policy to become even more stimulative than it is now.
Just over half believed that fiscal stimulus would add between 0.5 and 1.5 percentage points to gross domestic product growth in the second half of 2009, while over a third saw it as adding less than half a percentage point.
About 58 percent felt the stimulus would add between half and 1.5 percentage points to growth from the fourth quarter of 2009 to the fourth quarter of 2010, the survey showed.
Nearly 70 percent of economists believed that monetary policy was about right. About 56 percent of respondents expected the Federal Reserve to keep interest rates unchanged over the next six months, while 44 percent saw an increase.
The Fed has cut interest rates almost to zero and pumped around $1 trillion into financial markets via a range of credit easing measures to prevent lending from freezing up, amid a global credit crisis sparked by the collapse of the U.S. housing market.
Half of the economists do not believe quantitative easing actions of the Fed will be inflationary over the next couple of years, while 41 percent think they will, the NABE said.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)