U.S budget deficit will hit $3 trillion in fiscal 2021, CBO says

The US government's budget deficit would fall around $3 trillion in fiscal 2021, according to the Congressional Budget Office (CBO) on Thursday.

According to new projections from the nonpartisan CBO, gross domestic product growth will reach 7.4 % in 2021 based on fourth-quarter comparisons. 

The CBO last issued a deficit estimate in February, when it forecasted a $745 billion deficit, less than the one anticipated currently. According to current predictions, the public's share of the $23 trillion in government debt would rise to 103 % by the end of the current fiscal year.

The 2020 deficit was $3.13 trillion, and it is already at $2.06 trillion after the first eight months of the fiscal year. The total federal government debt is currently $28.3 trillion, with the public holding $22.2 trillion.

According to the CBO, the American Rescue Plan increased its fiscal 2021 deficit forecasts by roughly $1.1 trillion. The predictions exclude Biden's planned expenditures in infrastructure, child care, education, and other social programs, which may raise spending by trillions of dollars if not offset by tax or other revenue increases, Reuters reported. 

However, the CBO stated that a stronger-than-expected economic rebound, supported by solid consumer demand and an increase in the number of Americans receiving COVID-19 vaccinations, was offsetting the impact of some of the rescue spending on the deficit.

The CBO's fiscal 2021 deficit forecast is at 13.4 % of GDP, down from 14.9 % in fiscal 2020. The deficit is expected to shrink considerably to $1.153 trillion, or 4.7 % of GDP, in fiscal 2022, and $789 billion, or 3.1 %, in fiscal 2023, the report stated. 

There was some positive news as well, the personal consumption expenditures index will rise by 2.8 % this year. The PCE index is the favored inflation gauge for the Federal Reserve, which reported 3.4 %  inflation last week, considerably above its 2 % target.

The CBO then anticipates inflation to decrease in the next years, reaching 2% in 2022 and remaining around 2.1 % through 2025. 

The 10-year Treasury note rate is expected to climb to 2.7 % by the end of 2025.

With inputs from CNBC

Picture Credits: Britannica