The Congressional Budget Office (CBO) predicted this week that the U.S. budget deficit will shrink to roughly $1 trillion for fiscal 2022 but slowing economic growth will start to reverse the trend in coming years.
Last year’s budget deficit was nearly $2.8 trillion, the second largest in U.S. history, just behind 2020.
The nonpartisan CBO forecast U.S. GDP growth at 3.1 percent for 2022, driven by strong consumer spending but said the growth will start to slow as the Federal Reserve hikes interest rates to control inflation.
“As federal spending in response to the coronavirus pandemic wanes and the economic expansion continues, the budget deficit in 2022 is expected to shrink substantially from the amounts recorded in 2020 and 2021,” CBO said in its new outlook. “Nevertheless, under the assumption that current laws governing taxes and spending will generally remain unchanged in future years, federal deficits are set to remain large by historical standards and to generally increase throughout the next decade.”