Economic Outlook Improves as CBO Estimates Curb Inflation and Recession Fears
The Congressional Budget Office (CBO) said that the nation’s GDP will grow by 3.1% in 2022, driven by strong gains in consumer spending on service, according to its Budget and Economic Outlook report, released May 25.
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The CBO also expects elevated inflation to persist in 2022 because of “the combination of strong demand and restrained supply in the markets for goods, services, and labor,” but then subside as supply disruptions dissipate, energy prices decline, and less accommodative monetary policy takes hold.
“In CBO’s projections, the current economic expansion continues, and economic output grows rapidly over the next year,” the CBO announced. “To fulfill the elevated demand for goods and services, businesses increase both investment and hiring, although supply disruptions hinder that growth in 2022.”
In addition, it expects the growth of payroll employment to continue at a rapid pace through 2022, and in 2023 it expects the growth of economic output to slow as financial conditions tighten and fiscal support wanes further.
Phillip Swagel, CBO director, said in a statement that “the pace of inflation since the middle of last year has been the fastest in four decades.”
Swagel added, “In response, the Federal Reserve tightens monetary policy, and interest rates rise rapidly. Real GDP (that is, GDP adjusted to remove the effects of inflation) grows by 3.1% this year, and the unemployment rate averages 3.8%. After 2022, economic growth slows, and inflationary pressures ease.”
Finally, the CBO projects that the federal budget deficit will shrink to $1 trillion in 2022 (it was $2.8 trillion last year) and the annual shortfall would average $1.6 trillion from 2023 to 2032.
“That shortfall would represent a substantial reduction from deficits in the past two years as federal spending in response to the coronavirus pandemic wanes and the current economic expansion continues,” Swagel said in the statement.
Office of Management and Budget (OMB) Director Shalanda Young called this the “largest nominal reduction in the federal deficit in American history.”
“With that historic reduction, our deficit this year will be lower than CBO projected it would be before passage of the American Rescue Plan,” she said in a press release on the White House’s website.
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