CBO projects federal debt to reach 107% of GDP by 2029.

The United States Faces a Challenging Fiscal Outlook

The Congressional Budget Office (CBO) has released its long-term projections, revealing the magnitude of the fiscal challenges ahead for Congress and President Joe Biden. According to the CBO, if current laws remain unchanged, public debt will skyrocket to 107% of the country’s gross domestic product (GDP) by 2029 and a staggering 181% by 2053.

The Impact of Rising Debt

The CBO warns that such high and increasing debt levels will have detrimental effects on the economy. It will slow down economic growth, increase interest payments to foreign debt holders, and pose significant risks to the fiscal and economic outlook. Lawmakers may also find themselves more constrained in their policy choices.

Furthermore, the CBO’s annual report reveals that by the end of this year, federal debt held by the public will reach 98% of GDP. This year alone, debt held by the public is projected to be 2% higher than previously forecasted. However, it is expected to be 9 percentage points lower in 2052 compared to earlier predictions.

Spending and Interest Costs

The report also highlights the expected trends in spending and interest costs. While spending as a percentage of GDP is anticipated to decrease this year as the pandemic subsides, it is projected to rise after 2026 and reach over 29% of GDP by 2053. In comparison, spending averaged around 21% of GDP from 1993 to 2022.

The CBO predicts that rising interest rates and large primary deficits will cause interest costs to nearly triple in relation to GDP over the next three decades. Additionally, healthcare and Social Security spending will surge as the population ages and healthcare costs continue to rise.

Other Economic Forecasts

Alongside the fiscal projections, the CBO also provides forecasts for other crucial economic metrics. Despite grappling with high inflation, the CBO predicts that inflation levels, as measured by the personal consumption expenditures price index, will return to normal next year.

There are concerns that the Federal Reserve’s efforts to raise interest rates and combat inflation could lead to a recession. Currently, the unemployment rate stands at a historically low level of 3.7%. However, the CBO expects it to increase to 4.7% by the end of this year before gradually declining to 4.5% by the end of next year. In the long run, the budget office projects an unemployment rate of 4.1% in 2053.

For more information, click here to read the full article from The Washington Examiner.

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