U.S. deficit will total $3 trillion in fiscal 2021, budget panel says

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The federal government will be swimming in $3 trillion of red ink by the end of fiscal 2021, according to a Congressional Budget Office estimate released Thursday that swelled 33% from the last forecast.

As a result of multiple stimulus measures aimed at combating the pandemic’s economic impact, Congress will run a budgetary shortfall this year equivalent to 13.4% of GDP, the second-largest level since 1945 and exceeded only by the 2020 spending.

The CBO last released a deficit estimate in February, when it saw a deficit $745 billion smaller than the one projected now. Under the current projections, the $23 trillion portion of government debt held by the public would bump to 103% by the end of the current fiscal year.

The deficit in 2020 totaled $3.13 trillion and already is at $2.06 trillion through the first eight months of the fiscal year. Total government debt is now $28.3 trillion, of which the public holds $22.2 trillion.

“The economic disruption caused by the 2020-2021 coronavirus pandemic and the legislation enacted in response continue to weigh on the deficit (which was already large by historical standards before the pandemic),” the office wrote in a report.

There was some good news: The CBO raised its estimate for gross domestic product to gain 7.4% by the end of 2021 and 2.8% a year through 2025, well above its historical norm. Unemployment also will continue to decline, the report said, until it falls to around 4% in 2022 and remains there for several years.

On inflation, the office sees the personal consumption expenditures index rising by 2.8% this year. The PCE index is the preferred inflation measure for the Federal Reserve, which last week indicated a headline inflation rate of 3.4%, well above its 2% target.

The CBO then expects inflation to moderate in coming years to 2% in 2022 then holding around 2.1% through 2025. The 10-year Treasury note yield is estimated to rise to 2.7% from the end of 2025; it most recently traded around 1.48%.

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