WASHINGTON (AP) — The Congressional Budget Office released an economic outlook on Wednesday indicating that high inflation will persist into next year, likely forcing the federal government to pay higher interest rates on its debt.
The nonpartisan agency expects the consumer price index to rise 6.1% this year and 3.1% in 2023. This forecast suggests inflation will slow from current annual levels 8.3%, but would still be well above a long-term benchmark of 2.3. %.
The 10-year estimates contain positive news, as the annual budget deficit this year will be $118 billion lower than last year’s forecast. It’s a byproduct of the end of pandemic-related spending and the strong job growth it helped spur. As a share of the total economy, public debt will decline through 2023. Nonetheless, accumulated federal debt will likely continue to grow over the next decade to about 110% of US gross domestic product.
The Federal Reserve has attempted to reduce inflation by raising its benchmark interest rates, which has led to a substantial increase in the interest charged on 10-year US Treasuries in recent months. One consequence is that the government will spend more money this year to service its debt. By 2032, annual interest payments will reach nearly $1.2 trillion, more than the federal government spends on defense.
Still, the CBO warns that its numbers “are subject to considerable uncertainty, in part due to the ongoing pandemic and other global events,” including Russia’s ongoing war in Ukraine. The report captures at least the first few months of the war, according to CBO.
Economists have said the coronavirus relief packages issued by the Biden and Trump administrations have contributed to higher levels of inflation. But high prices were also fueled by a delay in Fed action, supply chain disruptions and the tumult produced after Russia’s invasion of Ukraine in February.
Ben Harris, Treasury Department assistant secretary for economic policy, tweeted Tuesday that factors driving inflation also include soaring corporate profits, due to a lack of business competition – as well as businesses not being fully prepared for the reopening of the economy as pandemic restrictions have been lifted. The administration pointed out that its plan puts the US economy in a stronger position relative to the rest of the world, as the unemployment rate is 3.6%.
“The U.S. bailout has spurred an extraordinarily rapid recovery and leaves us in a strong position to address the global challenges posed by supply chains and the economic fallout from Russia’s invasion of Ukraine,” he said. he tweeted.
The report states that beyond 2032, “if current laws remained broadly unchanged, deficits would continue to grow relative to the size of the economy over the next 20 years, keeping debt measured as a percentage of GDP over an upward trajectory throughout this period”.
Maya MacGuineas, chair of the Committee for a Responsible Federal Budget, told The Associated Press before publication that the pandemic, the war in Ukraine and other factors underscore the importance of reducing the annual deficit.
“Unfortunately the underlying story here is one of fiscally unsustainable positions and on top of that we have this added challenge of inflation and a reminder that external shocks are still hitting us,” she said. .
Fatima Hussein, Associated Press