The Economic and Budget Outlook: An Update
CONGRESSIONAL BUDGET OFFICE (U S CONGRESS) WASHINGTON DC
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The Congressional Budget Office CBO estimates that the fiscal year 1989 federal budget deficit will total 161 billion, a bit higher than the 1988 level of 155 billion. Even with no further changes in budgetary policies, the deficit is projected to drop to 141 billion in 1990 and to remain around that level for the next several years. Carrying out the budget agreement that the Congress and the Administration negotiated earlier this year would produce about 15 billion each year in permanent deficit reduction and 9 billion in one-time savings in 1990. The budget projections assume that the economy will continue to grow during the rest of calendar years 1989 and 1990 at the subdued pace of early 1989. Signs of inflationary pressures and the absence of fiscal restraint prompted the Federal Reserve to maintain a restrictive monetary policy throughout most of 1988 and early 1989. While the economy did not respond promptly to the higher interest rates that resulted, signs of slower growth began to appear in the spring of 1989, and by June the Federal Reserve felt able to loosen policy. Further declines in the federal deficit will permit this monetary easing to continue and will foster economic growth in the long run. CBOs forecast reflects the strong consensus among economists that the recent slow-down will not turn into a recession, although calculations with economic models indicate that there is about a one-in-five chance that a recession will begin during the next nine months.
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