Farrell: Debt ceiling fight could be big blow to resilient economy

These are confusing economic times.

A majority of surveyed economists have been predicting that the combination of inflation, monetary tightening by the Federal Reserve, and war in Ukraine would push the economy into recession for a long time now.

Yet the unemployment rate at 3.4% is the lowest since May 1969. (For those with long memories, that's when the album of the year at the Grammy Awards went to Glen Campbell's "By The Time I Get To Phoenix" and "Oliver!" won picture at the Academy Awards.)

The economy has proved remarkably resilient, even after the latest blow, the failure of several regional banks. Yet a needless fight over raising the U.S. government's debt ceiling is putting the remarkable job gains of recent years at risk.

The last time the federal government came close to default was in 2011 when a Republican-led House used the debt limit to try and make policy gains against a Democratic president.

Sound familiar?

A deal was struck back then before default after the ratings agencies downgraded the U.S. government's credit rating and the markets nosedived. The extent of economic and financial damage if the U.S. doesn't pay its bills is far from clear, but nothing good comes from default.

What should you do with household finances with the risk of default uncomfortably real? What moves might you take to shelter your savings from the financial crisis that will erupt if the government doesn't meet its obligations?

In reading through the various scenarios and recommendations preparing for this column, I kept coming back to the famous cliché attributed to everyone from President Eisenhower to Clint Eastwood: Don't just do something. Stand there.

This is one of those times when there's wisdom in the cliché.

For one thing, odds are the U.S. government won't really default on its debt, even though we may briefly go over the cliff before cooler heads prevail. For another, considering the turmoil of the past 15 years — great recession, pandemic, high inflation, etc. — your household finances are probably reasonably set up for managing through tough times.

Sure, you wish you had more savings, but who doesn't?

That said, take notes if you realize during this last (unnecessary) crisis that you are too vulnerable to market turmoil. In that case, once the debt ceiling impasse is resolved (and it will be), check your notes and shift your finances so that you can better sleep at night.

Chris Farrell is senior economics contributor, "Marketplace" commentator, Minnesota Public Radio.