CBO sees sharp reduction in fiscal 2022 deficit, but slows economy to increase debt By Reuters
© Reuters. FILE PHOTO: US one dollar banknotes are seen in front of the stock market chart displayed in this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration
By David Lawder
WASHINGTON (Reuters) – The U.S. budget deficit will narrow significantly to $1.036 trillion in fiscal 2022 from $2.775 trillion last year as a strong recovery leads to higher revenues and lower spending, but the Slower growth will begin to reverse the trend, the Congressional Budget Office said Wednesday.
In releasing new baseline economic and fiscal forecasts, the CBO said it now expects the fiscal year 2022 deficit to be $118 billion lower than an estimate made last July. The government’s fiscal year begins on October 1 and ends on September 30.
The nonpartisan fiscal arbitrage agency forecasts solid U.S. real GDP growth of 3.1% for calendar year 2022, driven by strong consumer spending, down from the strong 5.5% rebound in 2021.
But the CBO said U.S. economic momentum would slow as the Federal Reserve raises interest rates to control inflation, and forecast growth of 2.2% for 2023 and 1.5% for 2024.
CBO expects inflation to remain high in 2022, in line with the highest pace in 40 years, with the consumer price index increasing by 6.1% and the personal consumption expenditure index increasing by 4.0 %, due to persistent supply constraints in the face of strong demand and a tight labor market.
Slower economic growth also means deficit reduction will reverse, the CBO said.
While he projected the fiscal year 2023 deficit to narrow slightly to $984 billion, deficits will increase in subsequent years, averaging about $1.6 trillion a year between 2023 and 2032.
The deficit for the 2022-2031 fiscal decade has increased by about $2.4 trillion since the July forecast, to about $14.5 trillion, largely due to legislative changes that boost spending, including the $1.2 trillion Infrastructure Investment and Jobs Act and fiscal year 2022 appropriations.
The CBO’s deficit projections do not include the additional $40 billion aid package for Ukraine, which passed last week after the agency locked down its budget and economic assumptions for the latest forecast. . It will be included in a later budget revision.
Increases in future deficits are also driven by forecasts of higher interest charges on the federal debt, which will amount to $1.2 trillion, or 3.3% of GDP by 2032, from $399 billion. dollars, or 1.6% of GDP, in fiscal year 2022, according to the CBO. projections.
CBO Director Philip Swagel told reporters that the projections are a sign that the “flow burden” of interest payments is “rising quite steadily and significantly over the 10-year budget window.”
The agency projects that US public debt will rise from 98% of GDP this year with an average interest rate of 1.9% to 110% of GDP by 2032 with an average rate of 3.1%.