July 29, 2011

Federal Update

Congressional action on the federal debt will have little effect on California’s 2011-12 economy.  Corporate earnings still are strong and the Federal Reserve will continue to keep interest rates low.  One effect of the federal debt discussion could be a downgrading of the federal credit rating. 

A federal credit downgrade probably will result in future interest rates being higher and a slowing of economic growth for 2012-13.  An economic slowdown for 2012-13, however, could be avoided if the credit downgrade is temporary and by the end of this year there is real action to control and limit the federal budget deficit. 

I believe that the debt ceiling discussions will not have a significant effect for 2011-12 and will not result in a need to make mid-year budget cuts for schools.  If, however, Congress does not get its act together and continues to be incapable of governing, then my belief could change.

~Dave Walrath