Shifting government finances are likely to take an even bigger bite out of growth over the next few years than many now expect, economists at the San Francisco Fed warned Monday.
In a research note, Brian Lucking and Daniel Wilson write fiscal policy headwinds will subtract one percentage point from growth over the next three years beyond the normal fiscal drag that usually comes during times of recovery. If not for the current and likely future stance of fiscal policy, the economy would be growing at a faster rate, which would allow for more robust job growth and, presumably, a more normal stance of monetary policy for the Federal Reserve.