Analysts: Debt Limit Deal Not Game Changing, But Watch 2025 Fiscal Cliff

Following the Congressional Budget Office's scoring of the debt limit legislation under consideration, sell-side analysts appear to view the near-term macroeconomic impact of the implied fiscal consolidation as fairly modest. (That's in line with MNI's initial takes (parts 1 and 2) this morning.)

• JPMorgan: "The CBO’s detailed scoring reinforces our initial view that the deal will have some macroeconomic impact, but that it’s not a game changer for the course of the business cycle."
  • Note JPM had written prior to the official CBO scoring that the end of student loan interest forbearance (which is included in the bill) "probably translates into lower consumer spending by the equivalent of about 0.1% of GDP, though compressed into a short period of time could take between one-quarter to one-half percentage point off of quarterly annualized GDP growth. Again, this likely wouldn’t be a game-changer for the fate of the expansion but it is worth keeping an eye on for the ups-and-downs in the monthly data flow."
• Morgan Stanley: "...at most, we think it could be worth a couple of tenths off GDP growth in 2024."
• Wells Fargo notes that a "fiscal cliff" is setting up for 2025 when Washington will have to again determine discretionary spending levels, and the major parts of the 2017 Tax Cuts and Jobs act expire: "Setting aside the specific figures, we think this bill marks an important inflection point in federal fiscal policy. The past several years have been marked by highly accommodative federal fiscal policy. This era may be coming to an end as federal fiscal policy is shifting to a more neutral stance..."
  • "Incorporating this agreement into our forecast probably will reduce real GDP growth by a modest 0.1-0.2 percentage points per year over the next couple of years...a potential lull in the federal fiscal policy action over the next 18 months might be followed by major fiscal policy shifts after the 2024 presidential election"