The CBO said it expects slower growth in 2023 and at least one quarter of negative growth due to higher rates, which it said would create larger budget deficits for the government.
Elevated interested rates directly by the Federal Reserve, led by Chairman Jerome Powell, will slow growth in 2023 and could lead to at least one quarter of negative growth, the CBO said.to describe 2023, but it did acknowledge that gross domestic product adjusted for higher inflation would likely range from -2.0% to 1.8%. It said that "at least one quarter of negative real GDP growth between now and the end of 2023 is likely.
The CBO said growth would pick up in 2024 "as the economy recovers." However, for the next year, higher interest rates are expected to act as an obstacle to growth just as they did in 2022. "In particular, the federal funds rate — the rate that financial institutions charge each other for overnight loans — is likely to be greater in 2023 and 2024 than, respectively, the 2.4% and 2.6% estimated most recently for the fourth quarters of those years," CBO told Daines. "The revisions stem mainly from greater increases in 2022 in the federal funds rate set by the Federal Reserve and in inflation than CBO had projected.
Slower growth and elevated interest rates will also mostly likely lead to higher federal budget deficits and debt. CBO simulations based on updated economic data indicate budget deficits in 2023 running higher by $200 to $300 billion, and even more in 2024. The CBO released its letter to Daines just as it released an update on its economic projections for 2023 and 2024, which matched the assessment it offered to Daines."Rates of unemployment, inflation, and interest will probably be higher over the next two years than CBO projected in May 2022," that assessment said. "Slower economic growth and higher rates of unemployment, inflation, and interest increase federal deficits and debt.
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