Economy

Zandi: Economy reeling from Washington policies

by Erik Wasson - 11/07/13 5:09 PM ET

Economist Mark Zandi on Thursday said the economy is in tough shape following sequestration, the government shutdown and debt ceiling crisis.

The Moody’s Analytics economist wrote in his montly outlook that the combined spending cuts and tax increases are dampening demand worse than anytime in the last 65 years.

“The U.S. economy faces intense fiscal headwinds. Recent tax increases and government spending reductions, of which the across-the-board cuts from budget sequestration are only a part, are hitting the economy hard,” Zandi wrote.

“Fiscal austerity has been more intense this year than at any time since the U.S. was demobilized after World War II,” he added.

The 16-day government shutdown also caused “psychological damage” that is “impeding risk-taking and growth,” he said.

He said Congress must strive to “do no harm during the next round of budget negotiations.”

Zandi praised the Federal Reserve for continuing to pump easy money into the economy through its bond-buying program and said it must act carefully to foster more first-time home-buying.

“[W]ith fewer remaining distressed properties, higher house prices, and easing rental demand, single-family housing is no longer such a compelling investment,” he noted. “For housing to regain its momentum, first-time and trade-up homebuyers must fill the void left by investors. The summer surge in interest rates complicated this transition.”

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