Biden administration officials on Tuesday said they expected slower economic growth and significantly higher inflation this year than they had initially predicted, as rising prices continued to complicate the nation’s return to economic normalcy.
The White House Office of Management and Budget now forecasts the economy will grow by 1.4 percent, after adjusting for inflation, from the end of the fourth quarter in 2021 to the end of the fourth quarter this year. That is down from the 3.8 percent forecast the administration issued as part of President Biden’s budget proposal in March.
Officials now see an inflation rate, as measured by the Consumer Price Index, of 6.6 percent over the same time period, up from the 2.9 percent rate they forecast in March.
Administration officials attributed those revisions to the Omicron wave of Covid-19 and Russia’s invasion of Ukraine. Neither of those developments, which have contributed to slower growth and faster-rising prices globally, were captured in the earlier forecast.
The updated projections, contained in a mid-session review of Mr. Biden’s fiscal year 2023 budget, also showed the federal budget deficit shrinking faster this year and over the course of the decade than officials had initially forecast.
But beginning in 2023, deficits will be higher than the White House had projected. That is largely because the cost of interest payments on federal debt are expected to increase as the Federal Reserve raises interest rates in a bid to tame an inflation. Officials project a $1.3 trillion deficit next year, rising to $1.6 trillion in a decade.
Administration officials stressed that stronger-than-expected tax receipts have helped to reduce the budget deficit by $1.7 trillion this year compared with 2021. The 2022 deficit is now projected to be just over $1 trillion, which is nearly $400 billion smaller than the administration forecast in March. In a blog post, the budget office director, Shalanda Young, attributed that progress to the $1.9 trillion economic aid package Mr. Biden signed in early 2021.
“Thanks to the strength of our economic recovery — powered by the American Rescue Plan — revenues have increased significantly,” she wrote, “and the Administration has been able to responsibly wind down pandemic-related emergency spending.”
The wind-down of federal pandemic aid, along with the surge in inflation, has led to rising food and housing insecurity among Americans this year.
