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If A Recession Hits, Washington Would Have Few Options To Fight It


Here in Washington, the White House is warning that the partial government shutdown could bring economic growth to a standstill. Even before the shutdown began, though, some economists are worried about a looming downturn, possibly even a recession. As NPR's Danielle Kurtzleben reports, if that happens, it's not clear how much Washington could do to help.

DANIELLE KURTZLEBEN, BYLINE: It's not like there's ever a good time for a recession. But if one is indeed on its way, there's something for policymakers at the Federal Reserve and in Congress to start thinking about. The levers that we usually pull to boost the economy just might not work all that well this time. I called Mark Zandi, chief economist at Moody's Analytics, to see if my instincts on this were correct.

First things first, does that seem right to you?

MARK ZANDI: Yeah, it does. It does. There's just a lot less room to maneuver than is typical leading up to a recession, for sure.


ZANDI: Oh, should I be recording at this point?

KURTZLEBEN: Oh, yes. Absolutely.


KURTZLEBEN: Start recording.



KURTZLEBEN: So, OK, we started recording, and we talked about this. If a recession hits, what's the first fix? Let's start with the Fed.

ZANDI: The typical way is to let the Federal Reserve manage it. That means let the Federal Reserve lower interest rates to try to help support the economy.

KURTZLEBEN: This is why we often hear President Trump saying he doesn't want the Fed to raise rates. He wants to preside over a fast-growing economy.


PRESIDENT DONALD TRUMP: President Obama, we were heading south, and he had zero interest. It's really easy to do things with zero interest.

KURTZLEBEN: Think of these short-term interest rates as a sort of accelerator pedal. When the Fed lowers them, it's supposed to speed things up. The idea is to encourage more borrowing, more activity. But here's the thing. That accelerator pedal is already relatively close to the floor.

ZANDI: The Fed generally cuts interest rates by 4 or 5 percentage points in a typical downturn. Right now, the interest rate that they control is at 2 1/2 percent. So that just indicates how little cushion room they have to maneuver here.

KURTZLEBEN: The Fed can also try less conventional tools, like quantitative easing, often just called printing money. It's supposed to lower long-term interest rates. But, again, those are pretty low right now. So, OK, let's say monetary policy doesn't work. Recession fix number two - fiscal policy, spending money. Washington tried this during the Great Recession with that big stimulus package President Obama signed.


BARACK OBAMA: At this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe.

KURTZLEBEN: And it did help to soften the blow. But there's a potential problem with trying that now. The U.S. has way more debt right now than before the recession, and it's only projected to go up for a lot of reasons. There are longstanding issues. Entitlement spending continues to grow especially as boomers get older and go on Medicare. On top of that, there were the recent tax cuts.


UNIDENTIFIED POLITICIAN: We are giving the people of this country their money back. This is their money after all.

KURTZLEBEN: Importantly, economists do disagree widely over how bad government debt is for the economy. But either way, the prospect of ramping up the debt does spook some lawmakers, which might make them nervous about taking action. And it's also quite possible Washington just couldn't agree on how to respond considering especially how little they agree on lately.


CHUCK SCHUMER: We shouldn't shut down the government over a dispute. And you want to shut it down. You keep talking about it.

TRUMP: No, the last time, Chuck, you shut it down.

SCHUMER: No, no, no.

KURTZLEBEN: So it's quite possible Washington couldn't get its act together. Either way, there's one more question. Could businesses and households handle another downturn? One problem area here is corporations, some of which have brought on a lot of debt. And if and when interest rates rise, that gives businesses a tough choice. Here's Mark Zandi again.

ZANDI: Do I either make my debt payment or do I cut investment in jobs? And they're very likely to cut back on jobs and investment. So that just exacerbates the recession.

KURTZLEBEN: And for households, it's a mixed bag. On the one hand, Americans have really cut down their debt from where it was before the Great Recession. Even then, though, 4 in 10 Americans say they wouldn't be able to come up with a few hundred dollars in an emergency, meaning there are a lot of Americans who could suffer in a downturn. And it's not clear now how much the government could help. Danielle Kurtzleben, NPR News.

(SOUNDBITE OF THE BUDOS BAND'S "T.I.B.W.F.") Transcript provided by NPR, Copyright NPR.

Danielle Kurtzleben
Danielle Kurtzleben is a political correspondent assigned to NPR's Washington Desk. She appears on NPR shows, writes for the web, and is a regular on The NPR Politics Podcast. She is covering the 2020 presidential election, with particular focuses on on economic policy and gender politics.