Monetary and Fiscal Policies Fine Now, but Changes Will Be Needed

By Lynn Reaser

The latest polling of the nation’s leading business economists shows they generally believe that monetary and fiscal policies are appropriate now but that a pullback in stimulus and belt-tightening will become increasingly important to sustain the economic recovery.

Looking at monetary policy, a survey of members of the National Association for Business Economics (NABE) indicates that a majority thinks that the Federal Reserve both should and will boost interest rates during the next six months.  How much?  Most believe the rise will be a modest one-quarter to one-half a percentage point in terms of the federal funds rate, which currently stands close to zero.

With respect to fiscal policy, the economists believe that the economic stimulus package enacted last year has helped the economy to recover but that another stimulus package is not necessary.  They are also gravely concerned about the outlook indicating a sizable growth in the nation’s federal debt over the next decade.

How to fix the deficit problem?  From the tax side, the economists would like to see a major simplification of the tax system, with the closing of the numerous loopholes now in existence.  On the spending side, they advocate slowing the growth of social security spending, such as by extending the retirement age.  Queried about health care reform, they express concern that the current proposals before Congress do not tackle the critical cost problem.

Addressing the federal budget deficit in an election year may not be politically feasible, but kicking the can down the road can only go on so long.


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