The Congressional Budget Office released its first fiscal and economic outlook since the GOP tax cuts were enacted by Congress; here are the key takeaways:
- It expects the budget deficit to swell to $804bn this year, some $242bn more than it projected last summer.
- Fiscal stimulus will sharply lift growth this year, before the expansion loses momentum as the Federal Reserve lifts interest rates.
- Government debt held by the public will swell to nearly 100 per cent of US gross domestic product at the end of the 2020s -- the highest levels since 1946 and more than twice the average over the past five decades.
- High and rising debt would have serious negative consequences for the budget and the nation.
- The last time the US recorded deficits of more than $1tn was 2012, in the aftermath of the Great Recession.
- The deficit was on course to hit 5.1 per cent of GDP by 2022, a level exceeded only five times in the past 50 years.
- Net interest payments would rise to 3.1 per cent of GDP in 2028, up from 1.6 per cent in 2018.
- Government interest payments would be a bigger share of output than spending on defence as soon as 2024, according to the projections.
- An alternative set of CBO projections show public debt reaching 105 per cent of GDP by 2028 under that scenario — a share exceeded only once in US history.
- They think the Fed will lift short-term rates to 4 per cent by 2021, well above the Fed’s 2.9 per cent longer-term estimate for its official rate.
- Larger deficits will lower national saving and increase borrowing from abroad, lifting interest rates and slowing potential output growth.
