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CBO Report: The Budget and Economic Outlook, Fiscal Years 2012 to 2022

Published January 2012

The Congressional Budget Office (CBO) released its yearly Budget and Economic Outlook report on "'baseline' budget projections spanning the next 10 years. Those projections are not a forecast of future events; rather, they are intended to provide a benchmark against which potential policy changes can be measured." The report covers 2012-2022.

Among its findings:

"In part because of the dampening effect of the higher tax rates and curbs on spending scheduled to occur this year and next, CBO expects that the economy will continue to recover slowly, with real GDP growing by 2.0 percent this year and 1.1 percent next year (as measured by the change from the fourth quarter of the previous calendar year). CBO expects economic activity to quicken after 2013 but to remain below the economy's potential until 2018.

In CBO's forecast, the unemployment rate remains above 8 percent both this year and next, a consequence of continued weakness in demand for goods and services. As economic growth picks up after 2013, the unemployment rate will gradually decline to around 7 percent by the end of 2015, before dropping to near 5½ percent by the end of 2017.

While the economy continues to recover during the next few years, inflation and interest rates will remain low. In CBO's forecast, the price index for personal consumption expenditures increases by just 1.2 percent in 2012 and 1.3 percent in 2013, and rates on 10-year Treasury notes average 2.3 percent in 2012 and 2.5 percent in 2013. As the economy's output approaches its potential later in the decade, inflation and interest rates will rise to more normal levels.

...CBO's alternative fiscal scenario represents one possible set of changes in fiscal policy. Under that scenario, real GDP would be noticeably higher in the next few years than it is in CBO's baseline economic forecast: CBO estimates that, with such changes in policy, real GDP in the fourth quarter of 2013 would be between 0.5 percent and 3.7 percent greater than in the baseline forecast, and that the unemployment rate would be between 0.3 and 1.8 percentage points lower. But, over time, the resulting larger deficits would reduce private investment in productive capital and result in real GDP that would fall increasingly below the level in CBO's baseline projections."

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