The director of the nonpartisan Congressional Budget Office warned Wednesday that the economy is headed for a landing at least as rough — and possibly worse — than the Federal Reserve’s fight against inflation.
“For 2023, we expect stagnant output, rising unemployment, a gradual slowdown in inflation and interest rates to remain at or above year-to-date levels before the economy recovers thereafter.” said CBO Director Phillip Swagel in the publication of the annual forecasts of the US Economic and Budget Agency.
The CBO also said it expects The Treasury Department will run out of room to borrow below the debt limit between July and September. But he warned that the deadline could come before July if tax revenues are lower than forecast in the coming months. echo projections by some private sector economists.
In his economic forecastsThe CBO said that “output growth stagnates in early 2023 in response to the sharp increase in interest rates in 2022.”
Unemployment will rise to 5.1 percent at the end of 2023, the CBO said, up from a 53-year low of 3.4 percent in January. The economy, as measured by gross domestic product, is expected to contract in the first half of 2023 before returning to a slightly positive reading for the full year, according to forecasts.
“The first half of the year is a difficult period in our forecasts.”
– Director of the Congressional Budget Office, Phillip Swagel
The poor outlook marks a turnaround for the agency. By stating that growth will “stall” and GDP shrink in the first half of 2023, the CBO can be seen as a virtual projection of a recession, even though More upbeat data readings have made economists increasingly bullish recently The Fed could achieve a “soft landing,” raising interest rates enough to cool economic growth and tame inflation, but not enough to stop the economy from growing.
Swagel declined to say whether the agency is predicting a recession, noting that the National Bureau of Economic Research is widely seen as the arbiter of when economic recessions and expansions occur.
“The first half of the year is a tough period in our projections,” he said. “Unemployment is increasing. It’s not a huge increase in the unemployment rate, but it’s certainly an increase in the unemployment rate. And revenue growth is slightly negative.”
Swagel himself had appeared more optimistic in August in a letter to lawmakers saying it was too early to say whether the economy had entered a recession.
“It might become obvious in retrospect that the economy went into recession this year. However, this is not clear from the data available in early August,” he wrote.
A positive note in the agency’s forecasts was that of inflation. Compared to the previous year, inflation, as measured by the Consumer Price Index, is expected to fall to 4.8% in 2023 and slowly decline to 3.0% in 2024 and 2.2% in 2025.
As part of its projections, CBO also forecasts the year Social Security will no longer be able to pay benefits in full. His “expiration date” had moved a year closer to 2032, from 2033.
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