Squabbling in Washington may not imperil the economy just yet — but experts warn a prolonged government shutdown could throw cold water on the recovery.
“We’re going to have a drop in economic progress,” said Mark Williams, a finance professor at Boston University’s school of management.
All eyes are on the Federal Reserve Bank’s next meeting, where it had been expected that tapering of the central bank’s $85 billion bond buying program would be announced.
Now Fed chairman Ben Bernanke could have no choice but to delay tapering again, even after surprising the finance world last month when he said it would not begin in September.
“Based on this, there’s no way the Fed is going to reduce” bond buying, Williams said. He added that the economy has been overly reliant on the government to keep interest rates low through the bond purchases for longer than policy makers hoped, and an extension of the program could spell trouble. There will come a point, Williams said, when the Fed will have to figure out “is this dangerous for the economy to be on life support for so long?”
Also concerning is the hit to confidence that the shutdown will bring, said Raymond Torto, chairman at CB Richard Ellis Group and the chairman of Associated Industries of Massachusetts’ Board of Economic Advisors.
“The economy is recovering, but it’s not back to good health,” he said. “You get hit by a second virus when you’re already suffering from a first, that’s not good.”
