Tuesday 10 April 2018

Key Points from CBO's Fiscal and Economic Outlook

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.