Economic recovery stalls, but now cuts could be coming

Bob Moon: Julia Coronado is chief economist with the investment bank BNP Paribas. She joins us live this morning as she does every Monday. Good Morning Julia.

Julia Coronado: Good morning, Bob.

Moon: We just outlined how this tentative deal would cut $2.4 trillion dollars from the budget. But the jobs and economic growth data seem to indicate the economy needs help -- not cuts. Is this the right time to be making these decisions?

Coronado: Well, it certainly isn't ideal. What we got on Friday was a disappointing report on GDP, and what we're seeing is that government is already weighing on growth -- starting at the state and local government level, and now it looks like we're going to get a drag on growth from the federal government level. So, it's just another headwind that the economy is going to have to absorb. And it really already is in shaky states to start with.

Moon: It seems Congress won't be helping boost the economy. But there is this other entity -- the Federal Reserve Bank -- that has the ability to, basically, print money. And it's always trying gauge the economy. Could it step in to provide some balance?

Coronado: Well, you know the fed is going to be meeting next week, and they have a sobering back drop. As you know, the fiscal picture is going to be tightening on the U.S. economy and the starting point isn't that great. It's not clear that printing more money would be the silver bullet that the economy needs. It's more of an insurance policy in case things get a lot worse. But, I think all options are going to be on the table. The fed knows that they're the only game in town so they're going to be looking at what they can do. At a minimum, they're going to keep easy policy around for quite a long time.

Moon: Very quickly here, that doesn't sound good. I hate to use the 'r' word, but could we be heading back to a recession?

Coronado: Well, you know, I don't expect a recession, I do think we're going to see some numbers improve, a bit in the second half, but I do think that the U.S. economy is just dealing with so many structural adjustments in real estate and elsewhere and at the fiscal level, that what we're in for is a slow recovery, for a while.

Moon: Julia Coronado at BNP Paribas, thanks for your insights.)

Coronado: My pleasure.

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