WASHINGTON — The federal budget deficit is expected to decline sharply this year as spending on pandemic relief programs declines and the economy continues to expand, the nonpartisan Congressional Budget Office said in new forecasts released. Wednesday.
The United States is expected to run a budget deficit of $1 trillion this year, up from $2.7 trillion in 2021, marking a return to the economy’s pre-pandemic trajectory. The CBO expects inflation to moderate this year from last year, but remain high, and said economic growth will be slow over the next two years.
The projections come at a time of great uncertainty for the US economy, with the Federal Reserve raising interest rates to rein in high inflation and still-disrupted supply chains, due to the pandemic and the war in Ukraine. . The future of President Biden’s economic agenda is also in limbo, with Democrats hoping to pass new legislation ahead of November’s midterm elections. Most of their major investment ambitions have been blocked by the political deadlock.
CBO officials said inflation was likely higher than expected because the report did not take into account the full impact of Russia’s war in Ukraine on food and energy prices around the world.
“Geopolitical events, including Russia’s invasion of Ukraine, add uncertainty to the economic outlook, including the inflation outlook,” the report said.
Understanding inflation and its impact on you
As it stands, the CBO expects inflation to moderate next year, but remains above the 2% annual average targeted by the Federal Reserve. Slowing consumer spending will dampen economic output next year, and gross domestic product is expected to grow 3.1% this year and at an average annual rate of 1.6% through 2026.
Mr. Biden has seized on the declining deficit as proof that he is fiscally responsible and taking steps to fight inflation. However, many analysts have pointed out that the deficit reduction is the result of expiring stimulus programs rather than austerity measures.
Annual deficits have averaged about $3 trillion over the past two years as the federal government pumps money into the economy to help Americans cope with the pandemic. The Biden administration has come under fire for the $1.9 trillion stimulus package Democrats passed last year, with Republicans saying it fueled inflation.
Biden administration officials, such as Treasury Secretary Janet L. Yellen, acknowledged that the money was most likely fueling inflation, but defended the package as necessary given the great uncertainty facing the economy. is confronted. CBO officials said the stimulus package contributed to inflation, but they could not determine to what extent it was responsible for the biggest price increases in 40 years.
Despite the declining deficit, the CBO said, debt remains a long-term problem for the United States. By 2032, debt held by the public is expected to reach 110% of gross domestic product, a record high, and the cost of interest on debt is expected to double as a share of the economy.
What is Inflation? Inflation is a loss of purchasing power over time, which means your dollar won’t go as far tomorrow as it did today. It is usually expressed as the annual change in the prices of common goods and services such as food, furniture, clothing, transport and toys.
“Fast-growing deficits as far as the eye can see are not good for wages, economic growth or our ability to invest in the future for the next generation,” said Michael A. Peterson, CEO of the Peter G Foundation. Peterson. , which helps reduce the deficit.
Maya MacGuineas, chair of the Committee for a Responsible Federal Budget, lamented that trillion-dollar deficits appear to be here to stay and that by 2031 the annual deficit will be back to $2 trillion, according to the CBO. .
‘Now is not the time to break out the glasses of champagne,’ Ms MacGuineas said.