NEW YORK (Reuters) - In the wake of the financial crisis, stimulative fiscal and monetary policies boosted aggregate U.S. gross domestic product over 4 percent in the two to three years after the end of the last recession, a new study published on Wednesday shows.
“These policies helped support GDP growth of 3.0 percent in 2010 and 1.7 percent in 2011, implying that the U.S. might still be mired in a recession absent this stimulus,” Fitch Ratings and Oxford Economics said in a new research report.
In September 2010 the National Bureau of Economic Research, the arbiter of economy cycles said the last U.S. recession was declared to have come to an end after 18 months in June 2009.
Fitch and Oxford Economics said the policy response to the financial crisis in 2008 helped prevent a longer and deeper U.S. recession, but does not serve as a viable long-term driver of economic growth.
Fiscal stimulus has increased the U.S. debt load but confidence in the economy and other economic measures have shown some improvement, the study said.
However, questions about the depth of organic growth taking hold “remains an open question” and that if the trajectory of the economy remains uncertain, there could be an impact on the “creditworthiness and credit ratings of all U.S. sectors, including corporates, municipal finance and structured finance.”
“Until it becomes clearer that the economy can continue to grow sustainability without the support of stimulative policies, Fitch anticipates limited future ratings upgrades within the sectors most closely tied to the U.S. economy,” the study said.
Fiscal stimulus programs considered in this study were the $700 billion Trouble Asset Relief Program (TARP), the $840 billion American Recovery and Reinvestment Act, the $3 billion “cash for clunkers” car rebate.
The monetary policy response from the U.S. Federal Reserve includes near zero interest rates, now expected to stay in place into 2014; $2.3 trillion worth of asset purchases, also referred to as quantitative easing, to keep interest rates low.
The Fed’s $400 billion bond buying program, the so-called “Operation Twist”, is aimed at holding down mortgage rates and other long-term borrowing costs through the purchase of longer-term debt while selling short-term maturities. This program is scheduled to end in June.
Oxford Economic’s estimates that the low monetary policy added about 1 percent to GDP in the last two years of the economic recovery. But without the addition of asset purchases, “the U.S. economy may have experienced little or no growth over the most recent period.”
Gross U.S. government debt, which includes federal, state and local authorities, is expected to approach 100 percent of GDP, putting more pressure on the government to cut stimulus spending but will also potentially undermine future growth.
While the U.S. corporate sector remains healthy, the uncertain economic outlook means increasing employment, a critical element for a healthy recovery, remains hazy.
Reporting By Daniel Bases; Editing by Andrew Hay