CBO Boosts Economic Growth Forecast
However, the federal budget deficit is expected to top $1 trillion for the first time since 2012, and to reach 5.4% of GDP.
Stronger-than-expected U.S. economic growth that’s pushed the jobless rate to a five-decade low will contribute to an uptick in inflation this year, according to the Congressional Budget Office (CBO).
In its budget and economic outlook through 2030, the nonpartisan agency projects that gross domestic product (GDP) will rise 2.2 percent this year, up 0.1 percentage point from its August estimate. A measure of prices excluding food and energy is also projected to increase 2.2 percent, just above the Federal Reserve’s goal. At the same time, the U.S. budget deficit will exceed $1 trillion in the fiscal year that ends in September, similar to the agency’s previous forecast.
“We also project that for several years, the economy will be producing more than what we estimate to be its sustainable level of output, leading to higher inflation and interest rates after a decade in which both remained low,” Phillip Swagel, director of the CBO, said in a statement accompanying the annual long-term forecast.
The data come in an election year, as President Donald Trump frequently touts his economic record. The economy is now in its 11th year of expansion, a record for the country, while the job market remains relatively tight and consumers upbeat.
Meanwhile, the U.S. budget gap will continue to expand at a pace faster than the economy will grow, primarily reflecting increased mandatory spending as the nation’s population ages. This year’s projected shortfall above $1 trillion would be the first to top that mark since 2012, after the government sharply boosted spending to emerge from the financial crisis.
The deficit as a share of GDP will expand to 5.4 percent in 2030, compared with an estimated 4.6 percent this year, the CBO says. Financing the shortfall will require more government debt issuance, and the CBO sees debt held by the public reaching 98.3 percent of GDP by 2030.
The CBO forecasts that the yield on the 10-year Treasury note will average 1.9 percent this year and 2.2 percent in 2021. The agency also expects the Fed to keep its benchmark rate unchanged through late 2021.
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