Under an assumption that current laws and policies
regarding federal spending and taxation remain the same,
CBO forecasts the following:
B A marked contraction in the U.S. economy in calendar
year 2009, with real (inflation-adjusted) gross
domestic product (GDP) falling by 2.2 percent.
B A slow recovery in 2010, with real GDP growing by
only 1.5 percent.
B An unemployment rate that will exceed 9 percent early
in 2010.
B A continued decline in inflation, both because energy
prices have been falling and because inflation excluding
energy and food prices—the core rate—tends to
ease during and immediately after a recession; for
2009, CBO anticipates that inflation, as measured by
the consumer price index for all urban consumers
(CPI-U), will be only 0.1 percent.
B A drop in the national average price of a home, as
measured by the Federal Housing Finance Agency’s
purchase-only index, of an additional 14 percent
between the third quarter of 2008 and the second
quarter of 2010; the imbalance between the supply of
and demand for housing persists, as reflected in
unusually high vacancy rates and a low volume of
housing starts.
B A decrease of more than 1 percent in real consumption
in 2009, followed by moderate growth in 2010;
the rise in unemployment, the loss of wealth, and tight
consumer credit will continue to restrain consumption—
although lower commodity prices will ease
those effects somewhat.
B A financial system that remains strained, although
some credit markets have started to improve; it is too
early to determine whether the government’s actions
to date have been sufficient to put the system on a
path to recovery.
The major slowdown in economic activity and the policy
responses to the turmoil in the housing and financial
markets have significantly affected the federal budget. As
a share of the economy, the deficit for this year is anticipated
to be the largest recorded since World War II.
Under the rules governing CBO’s budget projections—
that is, an assumption that federal laws and policies
regarding spending and taxation remain unchanged—the
agency’s baseline reflects these key points:
B CBO projects that the deficit this year will total
$1.2 trillion, or 8.3 percent of GDP. Enactment of an
economic stimulus package would add to that deficit.
In CBO’s baseline, the deficit for 2010 falls to 4.9 percent
of GDP, still high by historical standards.
B CBO expects federal revenues to decline by $166 billion,
or 6.6 percent, from the amount in 2008. The
combination of the recession and sharp drops in the
value of assets—most significantly in publicly traded
stock—is expected to lead to sizable declines in
receipts, especially from individual and corporate
income taxes.
According to CBO’s estimates, outlays this year will
include more than $180 billion to reflect the presentvalue
of the net cost of transactions under the Troubled
Asset Relief Program (TARP), which was created
in the fall of 2008. (Broadly speaking, that cost is the
purchase price minus the present value, adjusted for
market risk, of any estimated future earnings from
holding purchased assets and the proceeds from the
eventual sale of them.) The TARP has the authority to
enter into agreements to purchase assets totaling up to
$700 billion outstanding at any one time, but the net
cost over time will be much less than that amount.
B The deficit for 2009 also incorporates CBO’s estimate
of the cost to the federal government of the recent
takeover of Fannie Mae and Freddie Mac. Because
those entities were created and chartered by the government,
are responsible for implementing certain
government policies, and are currently under the
direct control of the federal government, CBO has
concluded that their operations should be reflected in
the federal budget. Recognizing that cost in 2009 adds
about $240 billion (in discounted present-value
terms) to the deficit this year.
B Economic factors have also boosted spending on
programs such as those providing unemployment
compensation and nutrition assistance as well as those
with cost-of-living adjustments. (Such adjustments for
2009 are large because most of them are based on the
growth in the consumer price index over the four
quarters ending in the third quarter of 2008.)
|
