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.
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.
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.
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.
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.
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.