On June 18, we got the latest CBO (Congressional Budget Office) update to the Budget and Economic Outlook for the years 2024 to 2034.
Now CBO forecasts US fiscal 2024 federal deficit at USD 1.915tln which is up USD 408bln from the February forecast (USD 1.507tln).
The main reasons for the deficit increase by 27.1% are: foreign military aid, student loans, the Federal Deposit Insurance Corporation's slower recovery of payments made in response to bank failures, higher outlays for Medicaid and other increases in discretionary spending.
Figure 1 shows revenues, outlays and deficits as % of nominal GDP, including CBO's latest projections.
Figure 2 shows the change in CBO's forecast for renewues and outlays. In 2024-34, total outlays are up to USD 2,597tln. Total renenues are up by USD 121 billion. It's obvious... increasing taxes is not popular... unlike increasing spending... makes sense!
As a result, the deficit increases by USD 2,475tn in the years 2024-34. Figure 3 shows this as a % of nominal GDP.
Such an increase in spending is not good for future inflation, ceteris paribus. We are moving from the norm of 20% of GDP spending (2014-2019) to a new level of 24% in 2025-2035. See Figure 4 (see blue circle with dashed line).
So you just have to get used to the new normal. But there are two main risks: (i) even higher spending in the next CBO forecasts, and (ii) even higher spending in the next recession.
CBO doesn't predict a recession in the next 10 years, but we might... see Figure 5.
