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What to Know about the Automatic Spending Cuts

March 5, 2013
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March 4 (Bloomberg) -- Across-the-board spending cuts to U.S. defense and domestic programs, known as sequestration, took effect on March 1. It will be a few weeks before the full effects are felt by federal agencies, defense contractors and the public. This gives negotiators more time to strike a deal.

Here are questions and answers about the cuts and the status of budget talks in Washington:

 

What happened March 1?

Automatic cuts, half affecting defense spending and the remainder spread over other federal agencies, went into effect. The federal government is reducing spending by $1.2 trillion over the next nine years, including $85 billion over the final seven months of this fiscal year.

 

What are the potential economic implications of the cuts?

The nonpartisan Congressional Budget Office estimates that the automatic budget reductions, if they are not stopped, will cause a 0.6 percentage-point reduction in U.S. economic growth this year. Federal Reserve Chairman Ben S. Bernanke told the Senate Banking Committee on Feb. 26 that "this additional near- term burden on the recovery is significant."

The median forecast of economists surveyed by Bloomberg last week calls for a loss of 0.5 percentage points from the gross domestic product and 350,000 U.S. jobs.

 

How will federal agencies be affected?

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