US deficit will skyrocket after being cut to $1 billion this year, CBO predicts
That’s a slightly more optimistic forecast than the 2.8% growth forecast that Federal Reserve officials released in March. But this is a step back from the rapid expansion seen in 2021, as the war in Ukraine, high inflation and rising interest rates are expected to weigh on economic activity.
The CBO also sees several factors holding back growth after this year, including rising interest rates and lower government spending, which will slow GDP growth to 2.2% in 2023 and 1.5% in 2024, according to the latest screenings.
The agency also doubled his expectations for inflation since it last released updated projections in July 2021. The CBO now sees the personal consumption expenditure index rising 4% in the fourth quarter from the same period a year earlier, and slow to 2.3% next year.
Last July, the CBO estimated that inflation would return to the Fed’s 2% target by the end of the year. Now he doesn’t see that happening until 2024.
Boosting the country’s near-term fiscal outlook, the United States is expected to withdraw a significant amount of tax money this year and see a drop over the next two years in federal debt held by the public. However, both of these benefits should be short-lived.
After plummeting to 96% of GDP next year, federal debt held by the public is expected to reach 110% of GDP within a decade and 185% of GDP in 2052, according to the budget office’s forecast.
Many fiscal conservatives are warning that Congress must take drastic action to avert this debt buildup, in order to save the United States from a financial crisis like Greece’s, where the debt-to-GDP ratio has exceeded 200% these past few years. last years.
The budget office is more than three months late in releasing the much-awaited budget forecast. By law, the agency is supposed to release the detailed forecast by mid-February so lawmakers can use it to guide the government’s funding debate before the new fiscal year begins in October.
This year, the economic outlook is also expected to factor into discussions over revamping the Build Back Better package, Democratic Sen. Joe Manchin was delayed in December. The centrist from West Virginia has made it clear that any new legislation should include policies aimed at cooling inflation and tweaking the U.S. tax code — preconditions likely to be influenced by the budget office’s revenue forecast and rising prices.
A host of new estimates in the report are also expected to help sharpen predictions for the country’s next debt cliff.
Pressing against the U.S. borrowing limit late last year, Congress raised the country’s debt limit to more than $31 trillion, a ceiling that should last until at least the end of December. . With the CBO’s new projections of fiscal influences such as income and interest rates, economic forecasters will likely focus on estimates of when the United States will accumulate enough debt to approach this new limit and risk not repaying the country’s loans.
The timing of the debt limit deadline is likely to be crucial in reaching deals to fund the government and other cross-party talks following November’s midterm elections that could significantly alter the divide. parties in both the House and the Senate.