Two days before the much-anticipated economic summit meeting in Jackson Hole, Wyo., the Congressional Budget Office released Wednesday its summer budget and economic outlook for the United States. The projections are not reassuring.
The CBO projects a $1.3 trillion deficit for 2011, or 8.5% of U.S. GDP, which it notes would be the third-largest deficit over the past 65 years. The larger deficits were posted in 2010 and 2009. As for GDP, the CBO analysis–using economic data through early July—projects that the economic recovery will continue, but only at a 2.3% pace in 2011 and 2.7% in 2012.
Using current law as a guideline, the report projects that because “federal tax and spending policies will impose substantial restraint on the economy in 2013,” it expects GDP of only 1.5% that year (year-over-year from Q4 2012), though it expects the economy to improve at an average rate of 3.6% from 2013 to 2016.
The CBO’s numbers for GDP are significantly lower than the Federal Reserve’s projected range of growth of 2.5%-3% in 2011, 2.2%-4.0% in 2012, and 3.0%-4.5% in 2013. Market watchers and economists—and advisors—are waiting to see what messages Fed Chairman Ben Bernanke will give at the Jackson Hole economic summit, sponsored yearly by the Kansas City Fed.
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There is speculation that the Fed may take steps to stimulate more growth in the economy, perhaps in the form of another round of quantitative easing. On Aug. 9, the FOMC announced that it would keep the Federal funds rate at its current level “at least through mid-2013,” citing the prevailing economic conditions that include “low rates of resource utilization and a subdued outlook for inflation over the medium run.”