According to Mark Zandi, the Chief Economist at Moody’s, the proposal put forward by Republicans to increase the debt ceiling will make a recession more likely, reports Business Insider. The GDP growth in the US is expected to slow down to 1.61% by the end of 2024, and Congress members should solve this problem as soon as possible; otherwise, the country will face a recession, and the financial problems will only get worse. Increasing the debt ceiling will only further slow down economic growth and increase the probability of a recession.
The leader of the House of Representatives, Kevin McCarthy, has introduced a bill to raise the debt ceiling in exchange for reducing government spending by approximately 8% next year and limiting economic growth to 1% each year after that.
Speaking at the Senate Budget Committee on Thursday, Mark Zandi warned that the proposed cuts could eliminate approximately 800,000 jobs by the end of 2024 and raise the unemployment rate from its current 3.5% to 5%, as well as slow down GDP growth to 1.61% by 2024, according to the Republicans’ bill, compared to the current forecast of 2.23%. All of this will only “wake up” a recession.
He also estimated that the Treasury will run out of cash by June 8, although this is possible at any time between June 1 and August 8.
US Treasury Secretary Janet Yellen previously warned that the government could run out of money and trigger an economic crisis by June 1.
The Republican bill is unlikely to pass in the Democratic-controlled Senate, which will prolong the deadlock that began when the debt ceiling was reached at $31.4 trillion in January.
The White House stated that it will not accept spending cuts as a condition of raising the debt ceiling. However, on Tuesday, President Joe Biden is scheduled to meet with McCarthy and other senior legislators at the White House to negotiate.