A top Bank of America economist predicted here Thursday that a last-second deficit deal in Congress later this summer will avoid a markets-jarring U.S. default on its debt.
"This is one of those negotiating games in which you give no ground to the very last second," said Ethan Harris, head of North America economics for Bank of America Merrill Lynch Research. "I think we're about to avert the big disaster."
Harris, speaking at the Mayor's Business and Industry Appreciation Breakfast, said the U.S. has "a fixable budget deficit," but that the economy is fragile.
"We should not be playing games of chicken with the debt ceiling," he said. "We need good, smart policy. Not crazy politics."
Harris, who holds a doctorate in economics from Columbia University, predicted Congress will produce "a Band-Aid result" on the deficit in the short term, with the markets pressuring Congress by late July.
He said he expects officials will undertake modest budget cuts, agree to a process of dealing with the deficit and extend the statutory debt ceiling.
"My hope is that after the [presidential election]..., we'll actually get sensible policy," Harris said.
The former Barclays and Lehman Brothers economist also said there's room for a tax increase, citing a preference for a higher gasoline levy.
"We need to share the pain," he said. "We can't say no taxes at all."
He also called for sensible controls on medical care cost growth and noted the country has high defense spending.
"The problem is that the deficit is so big, it has to be a broadly shared reduction," Harris said.
Concerning oil, he said he hopes the hit consumers felt at the pump earlier this year will pass.
"Hopefully as we go into the second half of the year, the oil shock fades," the economist said, which will add to economic growth.
He forecast the nation's jobless rate will drop to about 8.1 percent by the end of next year.
Harris said the Chattanooga-area economy will likely bounce back more quickly than the national one. The area's housing market didn't experience the excesses of other parts of the country, he said.
Hamilton County Mayor Jim Coppinger told the group he wants to continue to have "a business-friendly environment."
"One of the ways we hope to help is to hold the line on taxes when it's possible," he said.
Mayor Ron Littlefield called Chattanooga "the most transformed city in America." He said that more than 23,000 area businesses employ over 200,000 people, generating nearly $30 billion in annual sales.
Tom Edd Wilson, the Chattanooga Area Chamber of Commerce's chief executive, said that while the area welcomes new investment, existing businesses remain the foundation. "Your ability to remain competitive has positioned Chattanooga to move ahead," he said.