The CBO projects a $1.9 trillion deficit for FY 2024. If rate cuts are delayed and a recession occurs, the deficit could escalate even further.

The Congressional Budget Office (CBO) has recently updated its projections for the U.S. government’s budget deficit. Here are the key points:

• Fiscal Year 2024 Deficit:
  • The projected deficit for fiscal year 2024 is $1.9 trillion.
  • Adjusted to exclude certain payment timing effects, the deficit amounts to $2.0 trillion in 2024.
• Deficit Trend:
  • The deficit is expected to grow over the next decade.
  • By 2034, it is projected to reach $2.8 trillion, equivalent to 6.9% of GDP.
  • This cumulative deficit over the 2025-2034 period would total a staggering $22.1 trillion.
• Interest Costs:
  • Net interest costs are anticipated to account for over 50% of the budget deficit during this period.
  • Rising interest rates could exacerbate this situation.
• Assumptions:
  • These projections assume no recessions and lower interest rates.
  • However, if rate cuts are delayed and a recession occurs, the deficit could be even higher.

This year will mark the first year with over $1 trillion in annual interest expense on US debt.

The CBO assumes that rate cuts will soon help relieve interest expense.

However, rate cuts are all but certain.

Follow us @KobeissiLetter for real time analysis as this develops.

— The Kobeissi Letter (@KobeissiLetter) June 24, 2024