Inflation, bond and stock prices

Investment Analysis Clubs Macro Economic Trends and Risks
21

It indeed may not.

That being stated, we came close to breaking even in 2021 (debt increased by just 2% compared to 18% the year prior) and it is not outside the realm of possibility that we could get there again.

The CBO just a few days ago made downward adjustments to the deficit forecast. Not much (a little less than $100B), but progress. A continued strong economy could help reduce that further.

I am curious though, as to why they forecast it to grow in later years, even though they are including the additional revenues from the expiration of the 2017 tax cuts.

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22

If they don’t forecast growth, they will imply a paradigm change. Nobody wants to imply a paradigm change because then you have to explain it, usually with some sort of data model.

Unfortunately, politicians do not follow data models. Data models follow politicians.

23

This is what the CBO says about their forecast -

From 2024 to 2034, increases in mandatory spending and interest costs outpace declines in discretionary spending and growth in revenues and the economy, driving up debt. That trend persists, pushing federal debt to 172 percent of GDP in 2054.

This may sound pessimistic, but it’s very important to keep in mind that the CBO can only make static forecasts. I think that means they can’t make assumptions regarding any changes that could lead to changes in their forecast. At least this is what I’ve read about CBO, but I don’t fully understand it. Anyone know details about it?

24

From your linked report

Economic growth slows in 2024 as unemployment increases, partly as a result of tight monetary policy. Real (inflation-adjusted) GDP growth accelerates in 2025 after the Federal Reserve responds to weaker economic conditions in 2024 by lowering interest rates.

You might as well get out the magic 8 ball. It is rubbish.

Economic forecasts are all rubbish.

The issue is what was the money spent on? A good chunk went into infrastructure ongoing…That tells a different story.

25

CBO forecasts are based on current law as it exists. If increases (say COLA) is current law (or is already-signed law), then it can be included. No proposed/desired/hoped-for changes are included. One group wanted CBO to analyze proposed changes based on “the assumptions made in proposed new laws”–and ignore anything that contradicted such assumptions. Of course, that is nonsense–unless the proposed law actually gets passed signed into law.