U.S. Federal Deficit Could Shrink by More Than Half in 2022, CBO Says

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Inflation has taken off. Above, a grocery store in New York City this month.

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Spencer Platt / Getty Images

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According to a report from the Congressional Budget Office, the federal budget deficit could drop to $1 trillion in 2022, down from $2.8 trillion last year.

The CBO said the pandemic resulted in a reduction in spending.

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This year’s budget deficit is 3.9% of total GDP, down from 12.4% last year. But the non-partisan agency estimates it will grow to 6.1% of GDP in 2032 under current laws, up from 3.5% of the deficit average GDP over the past 50 years. The CBO estimates that baseline losses will average $1.6 trillion annually from 2023 to 2032.

Real GDP, in turn, is projected to increase by 3.1% in 2022. The CBO said that after 2022, growth is projected to slow due to tightening of monetary policy and reduction in fiscal support.

The CBO regularly publishes reports representing estimates of federal deficit, revenue and spending for the 10-year period. The most recent update was in July 2021, before inflation reached its level over the past few months. At the time, the CBO was predicting that inflation, as measured by the Consumer Price Index, would come in at an annualized pace of 2.3% from the fourth quarter to the fourth quarter. Consumer prices had grown at an 8.3% annual pace as of April, and the CBO expects a 4.7% increase from the fourth quarter to the fourth quarter. At the time, the CBO was predicting that inflation, as measured by the Consumer Price Index, would come in at an annualized pace of 2.3% from the fourth quarter to the fourth quarter. Consumer prices had grown at an 8.3% annual pace as of April, and the CBO expects growth of 4.7% in the fourth quarter to the fourth quarter, or 6.1% year over year.

The agency is forecasting higher inflation in 2023 than last July, but said prices could begin to stabilize in 2023 and 2024, closer to the Federal Reserve’s 2% inflation target by the end of 2024.

The unemployment rate is projected to decline over the next year due to the continued expansion of the economy at a 3.8% annual rate. The CBO said it could remain in that range until 2026, but could increase to 4.5% from 2025 to 2032.

Write to Sabrina Escobar at [email protected]

Credit: www.marketwatch.com /

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