x.com/ESYudkowsky/status/1971044129665937574
1 correction found
The 2013 Fed successfully canceled out a sudden sharp cutback in govt spending, the "sequester".
Contemporaneous CBO and Federal Reserve sources said the 2013 sequester still materially restrained growth and employment, so it was not fully "canceled out" by the Fed.
Full reasoning
This sentence overstates what happened in 2013.
Official sources from the time say the sequester did continue to weigh on the economy, even with highly accommodative Fed policy:
- The Congressional Budget Office wrote in February 2013 that, in the absence of sequestration, GDP growth in 2013 would be about 0.6 percentage points faster and about 750,000 more full-time jobs would be created or retained by the fourth quarter. That is the opposite of the cutback being fully offset.
- In July 2013, the Federal Reserve's own FOMC minutes said participants saw "further signs" that tighter federal fiscal policy had restrained economic activity in the first half of the year, including slower sales and equipment orders, and that fiscal policy was still "restraining economic growth."
- The FOMC's June 19, 2013 statement likewise explicitly said that "fiscal policy is restraining economic growth."
So while one can argue that Fed policy helped cushion the blow, the claim that the Fed "successfully canceled out" the sequester is contradicted by both the Fed's own contemporaneous description and CBO's estimates of sizable remaining effects on output and employment.
3 sources
- Automatic Reductions in Government Spending -- aka Sequestration | Congressional Budget Office
In the absence of sequestration, CBO estimates, GDP growth would be about 0.6 percentage points faster during this calendar year, and the equivalent of about 750,000 more full-time jobs would be created or retained by the fourth quarter.
- Minutes of the Federal Open Market Committee, July 30-31, 2013
Participants reported further signs that the tightening in federal fiscal policy restrained economic activity in the first half of the year... and fiscal policy was restraining economic growth.
- Federal Reserve issues FOMC statement, June 19, 2013
Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth.