The White House on Tuesday issued a budget update that foresees slower economic growth and higher inflation than predicted earlier this year along with narrower deficits in the near term.
In its annual mid-session review, the White House Office of Management and Budget said that the economy would grow by 1.4%, adjusted for inflation, from the fourth quarter of 2021 to the fourth quarter of this year. Growth in 2023 is now predicted to be 1.8%. Both figures are sharply lower than the 3.8% and 2.5% growth forecast for this year and next as part of the March publication of President Joe Biden’s fiscal year 2023 budget proposal. The new growth estimates are roughly in line with those of a blue chip panel of private professional forecasters, which call for 1.4% growth this year and 1.6% next year.
Inflation, meanwhile, is projected to be 6.6% for the fourth quarter of this year compared to a year earlier. The president’s March budget blueprint had forecast 2.9% inflation for the period.
“Administration officials attributed those revisions to the Omicron wave of Covid-19 and Russia’s invasion of Ukraine,” Jim Tankersley writes at The New York Times. “Neither of those developments, which have contributed to slower growth and faster-rising prices globally, was captured in the earlier forecast.”
At the same time, the White House budget office now sees the deficit for the current fiscal year totaling $1.032 trillion, or $383 billion lower than projected in March. The updated deficit projection is equivalent to 4.2% of gross domestic product, down from 5.8% in March. It is also $1.7 trillion lower than the deficit for 2021 — and the White House report says it’s likely that the final deficit will be even lower than the report estimates, based on historical patterns.
White House budget director Shalanda Young touted the narrowing budget gap as “the single largest nominal decline in the federal deficit in American history.”
“Thanks to the strength of our economic recovery—powered by the American Rescue Plan—revenues have increased significantly and the Administration has been able to responsibly wind down pandemic-related emergency spending,” Young wrote in a blog post.
She also noted that the updated report projects that Biden’s policies will further reduce deficits over the coming decade by more than $2 trillion — and that’s before the effects of the newly signed Inflation Reduction Act, which is projected to reduce deficits by about $300 billion over its first 10 years.
Yet the new report also sees a worsening fiscal picture in the medium term.
“Between fiscal years 2023 and 2032, cumulative deficits are projected to be $1.2 trillion larger than the White House predicted in March, after taking into account legislation enacted earlier this year and economic and technical revisions,” Roll Call’s Paul M. Krawzak and Peter Cohn note. “While revenue collections are expected to be almost $2.1 trillion greater due to higher wages and salaries — partly due to higher inflation — as well as technical reasons, spending is forecast to increase by substantially more. Major contributors to increased spending include the fiscal 2022 omnibus spending law, as well as Social Security payments to reflect higher inflation and more spending to service federal debt as interest rates have moved higher.”
Starting in 2023, the deficit is projected to be at least $1.3 trillion each year through 2032, with deficits cumulatively totaling more than $14 trillion over those years. Net interest costs on federal debt over that period total nearly $8.5 trillion.
The report adds that Biden’s proposed policies, if adopted by Congress, would reduce deficits by $2.6 trillion over the 10-year budget window.