The director of the nonpartisan Congressional Budget Office warned Wednesday that the economy is headed for at least bankruptcy — and possibly worse — as a result of the Federal Reserve’s war on inflation.
“For 2023, we project stagnant output, rising unemployment, slow inflation and interest rates remaining at or above the beginning of the year – before the economy picks up again,” said CBO Director Phillip Swagel in unveiling the agency’s annual forecast for the US economy and budget.
CBO also said it expects the The Department of Finance is running out of loan room in the debt limit sometime between July and September. But be warned that the deadline may come before July if tax receipts come below the forecast in the coming months, echoing projection from some private sector economists.
In the economic forecastCBO said, “Output growth stalled in early 2023 in response to a sharp increase in interest rates in 2022.”
Unemployment will rise to 5.1% by the end of 2023, the CBO said, a jump from the 53-year low of 3.4% seen in January. The economy, as measured by gross domestic product, is set to shrink in the first half of 2023, before rebounding to post a barely positive reading for the rest of the year, according to the forecast.
“The first half of the year in our projections is a difficult period.”
– Congressional Budget Office Director Phillip Swagel
The dour outlook marks something of a turnaround for the agency. By saying that growth will “stall” and GDP will shrink in the first half of 2023, the CBO may appear to be projecting a recession, though More optimistic data readings recently made economists increasingly optimistic The Fed can pull a “soft landing” – raising interest rates enough to slow economic growth and tame inflation but not so much that the economy stops growing.
Swagel declined to say whether the agency predicts recessions, noting the National Bureau of Economic Research is widely seen as the arbiter of when recessions and economic expansions occur.
“The first half of the year in our projections is a difficult period,” he said. “Unemployment is increasing. It’s not a huge increase in the unemployment rate, but it’s definitely an increase in the unemployment rate. And income growth is slightly negative.
Swagel himself has been seen more optimistic in August in a letter to the legislature he said it is too soon to say that the economy has moved into recession.
“Perhaps, in retrospect, it will appear that the economy moved into recession this year. However, it is not clear from the data available in early August,” he wrote.
One bright note in the agency’s forecast is inflation. Compared to the previous year, inflation as measured by the Consumer Price Index is expected to decrease to 4.8% in 2023 and to decrease gradually to 3.0% in 2024 and 2.2% in 2025.
As part of its projections, CBO also predicts a year in which Social Security will not be able to pay full benefits. The “exhaustion date,” is a year closer to 2032 than 2033.