CBO Sees Even Larger Deficits Persisting Over Next Decade

The Congressional Budget Office has increased its baseline expectation for nominal deficits over the 2025-34 period, to $22.1T in its June projections, vs $20.0T in its February projections (report here).

• The CBO attributes that largely ($1.6T) to legislative changes, including emergency supplemental appropriations seen earlier this year. It's also a reversal from the improved picture seen in February, in which the CBO lowered the cumulative deficit forecast through 2033 by $1.4T.
• This comes even against a stronger economic growth backdrop than had been seen in February, with the CBO citing a "surge in immigration" that started in 2021 and is assumed to continue through 2026.
• Over the next decade, mandatory (14.7% of GDP in 2023 to 15.3% in 2034) and net interest (2.4% to 4.1%) spending rises are seen more than offsetting diminishing discretionary spending (6.4% to 5.5%).
• Primary deficits will average 2.7% of GDP between 2024-34, with the overall deficit going to 6.9% of GDP in 2034 from 6.2% in 2023, albeit down from 7.0% in 2024.
• With those large deficits, federal debt held by the public is seen rising from 97.3% of GDP in 2023, to 122.4% in 2034. That's a jump from the 116% projected as of February, in light of the higher fiscal deficit. Either would represent a record proportion.
• As a side note, the CBO's forecasts assume the Fed will begin cutting rates in early 2025, with the forecasts upping its inflation projections and lowering those for the unemployment rate.
• Overall these estimates are subject to huge revisions depending on how policy and the economy play out, but they reinforce the outlook for a structurally massive fiscal deficit for the foreseeable future.