“It’s because this administration handled the pandemic responsibly,” Young said, “which has allowed us to scale back emergency measures, combined with a significant increase in revenue from a historically strong economic recovery. “.
On Capitol Hill, lawmakers have been clamoring for the budget office’s new forecast for months, as concerns about inflation and the deficit play a role in negotiations, including talks about revamping the Building back better package Sen. Joe Manchin (DW.Va.) was stunted in December.
The CBO has doubled its inflation expectations since last releasing updated projections in July 2021. The agency now sees the personal consumption expenditure index rising 4% in the fourth quarter from the same period a year earlier, then 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.
The agency maintained its forecast for economic growth this year, estimating that real gross domestic product will rise 3.1% in the fourth quarter of 2022 from a year earlier, largely due to strong consumer spending.
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.
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 hit 110% of GDP within a decade, higher than it has ever been. The federal debt will then reach 185% of GDP in 2052, the budget office predicts.
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.
Budget forecasters see revenues jumping this year by 19%, or a colossal $800 billion. This would come on top of last year’s 18% increase.
The increases will be widespread, the CBO predicts, with personal income tax leading the way, thanks in part to soaring inflation. Higher nominal wages translate into larger tax payments to the treasury.
In total, revenues will reach the highest level, relative to the size of the economy, since 2000.
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.
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.
Brian Faler contributed to this report.