• Over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt.

The Budget

In our latest projections, released on February 16th, the federal budget deficit totals $1.4 trillion in 2023, and annual deficits average $2.0 trillion over the 2024–2033 period. Those projections reflect the assumption that current laws governing federal taxes and spending generally remain unchanged. The deficit amounts to 5.3 percent of GDP in 2023 and grows to 6.9 percent of GDP in 2033 — significantly larger than the 3.6 percent of GDP that deficits have averaged over the past 50 years. (The deficit and spending numbers have been adjusted to exclude the effects of shifts that occur in the timing of certain payments when October 1, the first day of the fiscal year, falls on a weekend.)

https://www.cbo.gov/about/overview

The cumulative deficit over the 2023–2032 period that we now project is $3 trillion larger than we projected last May, mainly because of newly enacted legislation and changes to the economic forecast that boost interest costs and spending on mandatory programs.

Federal debt held by the public is projected to rise from 98 percent of GDP in 2023 to 118 percent in 2033 — an average increase of 2 percentage points per year. Over that period, the growth of interest costs and mandatory spending outpaces the growth of revenues and the economy, driving up debt. Those factors persist beyond 2033, pushing federal debt higher still, to 195 percent of GDP in 2053.

The increase in mandatory spending is driven by rising costs for Social Security and Medicare. Total discretionary spending falls in relation to GDP. As the cost of financing the nation’s debt grows, net outlays for interest increase substantially.

After reaching a historic high in 2022, receipts from individual income taxes are projected to fall in 2023 because collections from taxes on capital gains realizations and other sources, which have been strong in recent years, fall in CBO’s projections. Projected receipts rise after 2025 because of the scheduled expiration of certain provisions of the 2017 tax act.

The Economy

Now I’ll turn to the economy.

To reduce high inflation, the Federal Reserve has sharply increased the target range for the federal funds rate over the past year. In our projections, the Federal Reserve further raises the target range for the federal funds rate in early 2023 to reduce inflationary pressures in the economy. That rate falls in 2024 as inflation slows and unemployment rises.

Inflation is expected to decline in 2023 as pressures ease from factors that, since mid-2020, have caused demand to grow more rapidly than supply. That decline continues until 2027, when the rate of inflation is projected to reach the Federal Reserve’s long-run goal.

In response to the sharp increase in interest rates that occurred in 2022, the growth of real GDP (that is, GDP adjusted to remove the effects of inflation) comes to a halt in our projections in 2023. As the Federal Reserve reduces the target range for the federal funds rate, real GDP growth rebounds, led by the interest-sensitive sectors of the economy. It averages 2.4 percent from 2024 to 2027 and 1.8 percent from 2028 to 2033.

The unemployment rate rises through early 2024, reflecting the slowdown in economic growth. That rate falls thereafter, as output returns to its historical relationship with potential output (that is, the maximum sustainable output of the economy).