Fiscal Tightening Needed, but Will It Be Possible?

Fiscal impact There is a significant shift among economists about the stance of fiscal policy. The share viewing it as “about right” rose to 35 percent, the highest since March of 2008 and up from 22 percent in March 2009. The share of respondents feeling fiscal policy is too restrictive fell to 11 percent from 36 percent last March, while the number viewing it as too stimulative rose to 50 percent from 33 percent in March. Three-quarters responded that they would like to see fiscal policy become more restrictive over the next two years, but only 28 percent expect that it will be. In fact, the largest share, nearly 42 percent, expects fiscal policy to become even more stimulative than it is now.

The business economists believe that without the fiscal stimulus the second quarter negative growth rate would have been one-half percentage point lower (annualized basis). Interestingly, 20 percent feel the stimulus actually reduced growth during the quarter.

Slightly over half feel that fiscal policy will add between 0.5 and 1.5 percent to the annualized growth rate of the economy in the second half of 2009, while over a third see it as adding less than half a percent. Asked to look ahead to the impact of fiscal policy on growth from the fourth quarter of 2009 to the fourth quarter of 2010, about 58 percent feel it would add between half and oneand- one-half percentage points to the annualized growth rate of the economy.

The remainder is roughly evenly split between less impact or more impact than the majority foresee. Regardless of those expectations, fully 76 percent do not believe a second stimulus package is needed.

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