As the economy continues to expand over the forecast period, the interest rate on 10-year Treasury notes rises, reaching 2.7 percent in 2025 and 3.5 percent in 2031-still low by historical standards. By 2022, supply adjusts more quickly, and inflation falls but remains above its prepandemic rate through 2025. Inflation rises in 2021 to its highest rate since 2008 as increases in the supply of goods and services lag behind increases in the demand for them. Over the 2026–2031 period, real GDP growth averages 1.6 percent annually.Įmployment grows quickly in the second half of 2021 in CBO’s projections and surpasses its prepandemic level in mid-2022. Annual output growth averages 2.8 percent from 2021 to 2025, exceeding the 2.0 percent growth rate of real potential GDP. The EconomyĪs the pandemic eases and demand for consumer services surges, real (inflation-adjusted) GDP in CBO’s projections grows by 7.4 percent this year and surpasses its potential (maximum sustainable) level by the end of the year. In later years, technical changes that reduce projected deficits more than offset the effects of recently enacted legislation and revisions to the economic forecast. In 2021, the costs of recently enacted legislation are partly offset by the effects of a stronger economy and technical changes (changes that are neither legislative nor economic). (Revenues remain largely stable relative to GDP over the projection period.)Ĭhanges in CBO’s Budget Projections Since February 2021Ĭompared with the baseline projections that CBO published in February 2021, the agency’s estimate of the deficit for this year is now $0.7 trillion (or 33 percent) larger, and its current projection of the cumulative deficit for the 2022–2031 period, $12.1 trillion, is $0.2 trillion (or 1 percent) smaller. They increase in most years thereafter-boosted by rising interest costs and greater spending for entitlement programs-and reach 5.5 percent of GDP in 2031. In CBO’s projections, deficits fall over the next few years as pandemic-related spending wanes. At 13.4 percent of gross domestic product (GDP), the deficit in 2021 would be the second largest since 1945, exceeded only by the 14.9 percent shortfall recorded last year. The BudgetĬBO projects a federal budget deficit of $3.0 trillion in 2021 as the economic disruption caused by the 2020–2021 coronavirus pandemic and the legislation enacted in response continue to boost the deficit (which was large by historical standards even before the pandemic). This report provides additional detail about the agency’s latest baseline projections, which were published earlier this month. The Congressional Budget Office regularly publishes its baseline projections of what the federal budget and the economy would look like in the current year and over the next 10 years if current laws governing taxes and spending generally remained unchanged.
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