The Biden administration estimates that this year’s budget deficit will be $555 billion smaller than it projected in May, thanks to an economy that is recovering faster than predicted.
Despite the improvement, the government announced on Friday that it expects a $3.12 trillion deficit for the fiscal year that ends September 30. That would be the second-largest deficit in history, after only the $3.13 trillion deficit of the previous year. The government expects yearly deficits to never dip below $1 trillion for the next decade. The government expects a $1.54 trillion deficit in the fiscal year 2022, which begins on October 1.
The nonpartisan Congressional Budget Office predicts a $1.15 trillion deficit for next year. The CBO forecasts, however, are based on current law and do not account for the impact of two massive spending bills that have yet to pass Congress: a bipartisan measure to spend around $1 trillion on traditional infrastructure projects like roads and bridges, and a $3.5 trillion measure backed solely by Democrats to provide expanded health care, pre-school, and junior college.
Despite the additional infrastructure and social expenditure, the Biden administration announced Friday that it expects the deficits to be $684 billion lower over the next decade than previously estimated. Despite this improvement, the deficits over the next decade will reach $12.49 trillion.
The government authorized billions of dollars in help for individuals and companies caught in an economy reeling from the coronavirus epidemic in the previous two years, worsening the deficit. Last year’s deficit of $3.13 trillion exceeded the previous high of $1.4 trillion established by the Obama administration in 2009 when the government was spending significantly to combat a severe recession following the 2008 financial crisis.
According to the administration’s Mid-Session Review, a robust economic rebound accounted for much of the improvement in the deficit estimate for this year, showing the influence of President Joe Biden’s economic initiatives.
When compared to the fourth quarter of last year, the study boosted the administration’s economic predictions, indicating that the economy will grow by 7.1 percent this year. This is higher than the administration’s earlier forecast of 5.2% growth this year.
In addition to increasing growth this year, the administration’s revised projection raises inflation, anticipating a 4.8 percent increase in consumer prices this year compared to last year, up from a previous forecast of only a 2% increase. Officials said the hike reflected the country’s higher inflation thus far, which they said was caused in part by supply-chain constraints.
Inflationary pressures are expected to ease next year, with prices rising 3.3 percent in 2022 and then decreasing to 2.2 percent in 2023, according to the government. The Federal Reserve aims to keep inflation at 2% per year through managing its monetary policy.
(Source – Business Standard)