US Congressional Budget Office: "High Inflation to Persist Through Next Year... Reached Its Peak"

[Asia Economy New York=Special Correspondent Joselgina] The Congressional Budget Office (CBO) has analyzed that inflation in the United States will remain high throughout this year, increasing the cost burden on American consumers. It is expected to be difficult to reach the Federal Reserve's (Fed) inflation target level by 2024.

The Washington Post (WP) reported on the 25th (local time), citing a report released by the CBO, that inflation in the U.S. this year will record an annual rate of 4.7%, far exceeding the authorities' target. This analysis suggests that the Joe Biden administration, ahead of the midterm elections, will inevitably be politically hampered by high inflation. Inflation is cited as a reason behind President Biden's low approval rating, which is recently only in the 40% range.

The CBO forecasted that inflation will significantly exceed the Fed's target of 2% throughout 2022?2023. However, it added that the rate of inflation increase is unlikely to soar beyond the current level, effectively indicating that it has reached its peak. Additionally, the CBO projected that the Fed will raise the benchmark interest rate to 1.9% by the end of 2022 in response to inflation. This is below the 2.5% level expected by the market.

The real Gross Domestic Product (GDP) for 2022 is estimated to grow by 3.1%. Although this is lower than the 5.5% growth in 2021, WP evaluated it as relatively high compared to the average. The GDP growth rates for 2023 and 2024 were revised upward to 2.2% and 1.5%, respectively. The CBO analyzed, "The current economic expansion will continue," adding, "Companies will increase investment and employment to meet the increased demand, but supply disruptions will hinder growth in 2022."

WP reported, "The CBO report presented high growth and low unemployment," and expected that economic conditions that have exerted upward pressure on inflation?such as the COVID-19 pandemic, trillions of dollars in stimulus packages, and the impact of Russia's invasion of Ukraine?will gradually ease. Economic media CNBC analyzed, "This optimistic tone implicitly includes the expectation that the Fed can raise interest rates in 2022?2023 without pushing the U.S. economy into a recession."

The report partially reflected the initial impact of Russia's invasion of Ukraine. However, officials acknowledged at a press conference that it did not fully incorporate all possible effects on inflation. Actual inflation figures could far exceed those in the CBO report.

Alongside this, the federal government's fiscal deficit is expected to shrink significantly as COVID-19 relief budgets decrease. The federal government's fiscal deficit for the 2022 fiscal year ending in September is estimated at $1 trillion, which is $1.6 trillion less than the previous year.

WP analyzed, "The Biden administration has tried to emphasize deficit reduction, but voters remain anxious about inflation. Soaring inflation poses a major challenge to both President Biden and the Fed." Larry Mishel, an economist at the Economic Policy Institute, said, "I expect inflation to slow down except for energy," but added, "It is difficult to judge how much, how quickly, and where it will go."