President Biden and the Democrat-led Congress helped add $3.1 trillion to the federal deficit over the next decade, the Congressional Budget Office said Wednesday, delivering a depressing picture of the government’s finances and the economy.
Unemployment will start to tick back up this year, interest rates will remain high, inflation will come down slowly and output will be stagnant in 2023, with gross domestic product growing at less than half a percentage point, the analysts said.
Emergency pandemic spending will dissipate, which will help a little. But it will also reveal the true disconnect in the government’s finances, with normal spending “substantially” exceeding the government’s revenue every year, said Phillip L. Swagel, CBO’s director.
“Over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt,” Mr. Swagel said.
The government will run a $1.4 trillion deficit in 2023, or about equal to last year’s figure. That hole will grow deeper in the ensuing years, topping $2 trillion in 2030 and nearing $3 trillion a year by 2033.
Looking out over the 10-year budget window, those cumulative deficits are $3.1 trillion worse than projected a year ago.
CBO said half of that is due to new spending that Congress approved and Mr. Biden signed into law. Another $1.2 trillion is due to economic changes. The remaining $400 billion was attributed to “technical changes.”
Among the grim economic numbers, CBO projects:
– The chief measure of inflation, the PCE price index, will be 3.8% this year, down from 6.3% last year but still nearly double the Federal Reserve’s target.
– The unemployment rate will rise from 3.6% to 4.7% this year, then hit 4.9% in 2024.
– Real GDP growth will be three-tenths of a percent this year, rising to 1.8% next year before hitting a more robust 2.7% in 2025.
CBO said the growth estimates are “highly uncertain” because it’s difficult to say exactly what will happen with inflation.
If it persists at a higher rate than anticipated, it likely means higher interest rates that could dampen the economy even further. But if it subsides more quickly, interest rates may come down faster and growth could be higher.
Likewise, the employment projections are iffy because it’s difficult to predict what people who dropped out of the workforce during the pandemic will do.
The report comes as the government has bumped up against its $31.4 trillion borrowing limit and lawmakers on Capitol Hill debate whether — and how — to raise the figure.
CBO’s new data will give ammunition to both sides, and is unlikely to sway either party to abandon its stance.