A credible framework to set federal fiscal policy on a stable path – for example, one on which the ratio of federal debt to GDP eventually stabilizes or declines – is thus urgently needed to ensure longer-term economic growth and stability.
Even as fiscal policymakers address the urgent issue of longer-run fiscal sustainability, they should not ignore a second key objective: to avoid unnecessarily adding to the headwinds that are already holding back the economic recovery. Fortunately, the two objectives are fully compatible and mutually reinforcing.