April 29, 2024

Dear Colleague, 

Fiscal policy decreased U.S. GDP growth by 0.3 percentage point in the first quarter of 2024, the Hutchins Center Fiscal Impact Measure (FIM) shows. The FIM translates changes in taxes and spending at federal, state, and local levels into changes in aggregate demand, illustrating the effect of fiscal policy on real GDP growth. GDP increased at an annual rate of 1.6% in the first quarter of 2024, according to the government’s latest estimate.

A decline in tax collections since 2022 increased the FIM by 0.6 percentage point in the first quarter. This was more than offset by the waning effects of pandemic-era transfers and subsidies, which decreased the FIM by 0.7 percentage point. The combined effects of federal and state purchases decreased the FIM by an additional 0.2 percentage point. We anticipate that the negative effects of pandemic era transfers and subsidies will continue to diminish through the fourth quarter of 2025.

Fiscal policy provided significant support to economic growth when large swaths of the economy were shut down in 2020 during the COVID-19 pandemic. The FIM turned negative in the second quarter of 2021 as fiscal support waned.  Since the beginning of 2023, the FIM has reduced in magnitude but fluctuated around zero. Barring any changes in tax or spending legislation, we expect the FIM to be slightly negative through the end of 2025. 

Want to know more about our updates to the FIM? Read an explainer on the methodology.

Sincerely,

David Wessel

Director, Hutchins Center on Fiscal and Monetary Policy at Brookings