The latest forecasts “make it clear once again that we can and must make critical investments in the middle class, in expanding economic opportunity and in solving grand challenges, and that we can do it in a smart way. and fiscally and economically responsible,” an administration official said in a call with reporters.
The figures do not include additional savings expected from the recently passed health care, climate and tax bill, which is expected to reduce deficits by another $300 billion over the next decade.
Yet the White House sees the economy growing much slower this year and next and inflation higher than expected, but falling for the rest of the year.
Administration officials have pointed to lower deficits as one of the ways fiscal policy is helping the Federal Reserve rein in inflation, which remains near the highest levels Americans have seen in four decades.
The improvement in the fiscal outlook since the spring has been driven in large part by much stronger-than-expected tax revenues, which have jumped as a tight labor market pushes up wages for U.S. workers, increasing the amount people collect. the government.
That, coupled with lower government spending on pandemic relief and safety net programs, has led to a much narrower budget deficit than the administration projected just five months ago.
As a share of the economy, officials now see deficits shrinking by nearly two-thirds — from 12.4% of gross domestic product in 2021 to 4.2% in fiscal year 2022, which ends. September 30. It’s also lower than the 5.8% they were expecting in March.
Looking ahead, White House officials see rising interest rates increasing the government’s costs of servicing its $24 trillion debt as the Fed continues to hike rates to ease pressures on prices. But an administration official said Tuesday that those costs, adjusted for inflation, are expected to remain below their historical average in proportion to economic growth.
White House economists see GDP increases by 1.4% in 2022 and 2% in 2023, against 3.8% and 2.5% respectively forecast by the authorities in March.
The consumer price index is expected to reach 6.6% this year — comparing inflation from the fourth quarter to the fourth quarter of 2021 – then declining to 2.8% in 2023. That’s much higher than the 4.7% that administration officials projected in the president’s budget, although that those forecasts stalled in the fall of 2021, when many economists still believed that price pressures would soon start to ease.
The unemployment rate is expected to average 3.7% this year and reach a long-term average rate of 3.8% in 2024 and beyond, similar to what the administration forecast in March.