BBVA Compass economist Kim Fraser says policy uncertainty is the leading threat to the U.S. economy. Speaking before a packed hall at the Houston branch of the Dallas Federal Reserve Bank, Fraser laid out the worst case scenario: A failure by Congress to either raise the debt ceiling or to stave off deep cuts to federal spending.
The fear of such an outcome makes it difficult for businesses or consumers to plan for the future. And if they can’t plan, they’re less likely to spend.
“That could reduce growth by about 1.2% in the first half of 2013, which is a significant impact. This would also impact businesses hiring and such, so the unemployment rate could take another turn upwards.”
Fraser says Houston’s strong base of growth would help it weather a shock to the national economy, but it would not insulate the region completely. The federal government is expected to hit its debt ceiling sometime next month. The spending cuts, originally slated for January 2, are now set to take effect in March.