CBO projects US growth to slow from 3.1% in 2023 to 2% in 2024

CBO expects the Federal Reserve (Fed) to respond by reducing interest rates, starting in early 2025.

In CBO’s projections, economic growth remains steady at 2 per cent in 2025 before settling at roughly 1.8 per cent in 2026 and later years.

A surge in immigration that began in 2021 continues through 2026, expanding the labor force and boosting economic output, it said in its ‘An Update to the Budget and Economic Outlook: 2024 to 2034’.

The overall growth of prices is expected to slow slightly this year. In CBO’s projections, inflation as measured by the price index for personal consumption expenditures (PCE) falls from 2.7 per cent this year to a rate roughly in line with the Fed’s long-run goal of 2 per cent by 2026 and stabilises thereafter.

The rate of inflation is projected to be slightly lower in 2024 than it was in 2023 for three main reasons: supply chains will have largely recovered from pandemic-induced problems; rising unemployment will put downward pressure on wage growth; and higher long-term interest rates will put downward pressure on certain prices.

Relative to the size of the economy, US debt would swell from 2024 to 2034 as increases in interest costs and mandatory spending outpace decreases in discretionary spending and growth in revenues, CBO said.

Debt held by the public is projected to rise from 99 per cent of gross domestic product (GDP) this year to 122 per cent in 2034, surpassing its previous high of 106 per cent of GDP.

In CBO’s projections, the federal budget deficit in fiscal 2023-24 (ending September 30) is $1.9 trillion.

Short-term interest rates change little this year as the federal funds rate (the rate financial institutions charge each other for overnight loans) remains at its highest level since 2001. That rate will begin to decline in the first quarter of 2025.

CBO projects unemployment rate, which was 3.8 per cent in the first quarter of 2024, to rise gradually for the next several years as the growth of real economic output slows. The unemployment rate ticks up to 4 per cent by the end of 2025, rises to 4.5 per cent in 2030, and declines slightly thereafter.

ALCHEMPro News Desk (DS)