Biden Budget Trims Inflation, Raises GDP Outlook, Increases National Debt

U.S. President Joe Biden speaks during an event at the White House complex in Washington, on March 18, 2022. Win McNamee/Getty Images

In the proposed $5.8 trillion federal budget for fiscal year 2023, President Joe Biden and his administration published inflation, GDP, and deficit forecasts for the next 10 years.

The consumer price index is projected to clock in at 4.7 percent this year and 2.3 percent in 2023, according to the White House.

Nominal GDP is expected to rise 7.6 percent in 2022 and 5 percent next year, while the real (inflation-adjusted) nominal GDP is anticipated to grow 4.2 percent and 2.8 percent.

White House inflation and GDP projections are more generous than estimates from the Federal Reserve and private economists.

At this month’s Federal Open Market Committee (FOMC) policy meeting, the central bank trimmed its median change in real GDP to 2.8 percent in 2022 and 2.2 percent in 2023.

Others have revised their GDP forecasts downward, too. Although a recession is not the base case, the odds of an economic downturn have risen. The latest CNBC Fed Survey has the odds of a recession at 33 percent, mirroring Goldman Sachs’ recent numbers. The average GDP forecast for 2022 and 2023 fell to 2.8 percent and 2.4 percent, respectively.

Moreover, the long-term real GDP growth assumption is 0.4 percentage points above the Blue Chip consensus and 0.6 points above the Congressional Budget Office (CBO).

Inflation estimates do vary among private-sector economists.

A Bloomberg survey of economists suggests the average annual consumer price index (CPI) is predicted to climb to 5.1 percent this year. TD Economics is penciling in an average annual 7 percent CPI in 2022 and 2.4 percent next year. Kipling projects the annual inflation rate hitting 6.5 percent at the end of the year.

Despite pledging to cut the budget deficit by $1 trillion over the next decade, the U.S. government is still on track to record a total of $14.421 trillion deficits in this span, bringing the national debt to nearly 107 percent of the national GDP.

President Biden has repeatedly taken credit for slashing the deficit in his first year in office.

“My Administration is on track to reduce the federal deficit by more than $1.3 trillion this year, cutting in half the deficit from the last year of the previous Administration and delivering the largest one-year reduction in the deficit in U.S. history,” Biden said in a statement on March 28.

Office of Management and Budget (OMB) Director Shalanda Young and Council of Economic Advisers Chair Cecilia Rouse echoed the president’s claim on a conference call with reporters, citing the American Rescue Plan (ARP) as the chief reason for the deficit reduction.

“Three letters: ARP. This was not by accident,” Young told reporters. “And had the president not had the wisdom and the fortitude, as some people were saying it was time to retract and stop doing pandemic spending, I don’t believe and many experts don’t believe we’d be here. The growth we saw last year, the highest in 40 years, that added more jobs than ever recorded last year, we don’t believe was by accident. And without the American Rescue Plan, we don’t believe we would be here.”

Because inflation is so high and interest rates remain low, the real interest on the debt is negative. According to the president’s budget, the real net interest on the debt will only start growing in 2025.

“If the interest rate went up to 3 percent—and we are almost there—the annual cost of interest on the national debt held by the public would exceed the entire cost of the Defense Department,” Peter Tanous, the founder and chairman of Lynx Investment Advisory, told The Epoch Times.

“How will Congress and the American taxpayer react? We shouldn’t have to wait long to find out.”

But is the president’s deficit reduction plan enough? Not quite, says Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB).

While MacGuineas believes Biden should be lauded for addressing the red ink in Washington, “the budget still borrows too much, and the debt would grow too high.”

“Unfortunately, this budget leaves debt on an unsustainable path, and lacks important details on how it would structure the core of its agenda or address provisions scheduled to expire,” the CRFB head noted in a statement. “Even taking the budget at its word, debt would rise to a new record by the end of the decade.”

In the group’s recent analysis, it noted that spending and revenue would average 23.4 percent and 18.8 percent of GDP, respectively, over the next decade. This is excluding the president’s Build Back Better agenda. If Biden’s chief public policy plank is included, “spending and revenue would be even higher.”

With inflation at the forefront of economic issues, the administration is trying to shift the focus. While surveys show that the American people are not entirely blaming the president for high inflation and gasoline prices, citizens dislike the way Biden is handling the economy.

A recent Associated Press-NORC Center for Public Affairs Research poll found that about 70 percent of Americans think the U.S. economy is in bad shape, and nearly two-thirds disapprove of the administration’s economic management. Forty-eight percent also say Biden’s policies are hurting the economy more than helping it.

U.S. financial markets were relatively quiet following the release of the budget as the leading benchmark indexes turned slightly positive at the end of the March 28 trading session.

The Treasury market is green across the board on March 29, with the benchmark 10-year yield up 0.024 percent to 2.501 percent. The one-year note rose 0.031 percent to 1.707 percent, while the 30-year bond added 0.005 percent to 2.578 percent.

The U.S. Dollar Index, which gauges the greenback against a basket of currencies, traded above the 99.00 mark throughout most of March 28.