INFLATION, ECONOMY WILL BOTH SLOW, CBO SAYS

U.S. inflation and economic growth will slow this year and into next, the nonpartisan Congressional Budget Office (CBO) has predicted.

“Elevated inflation persists in 2022 because of the combination of strong demand and restrained supply,” CBO director Phillip Swagel said in a statement. 

The supply chain mess will begin sorting itself out in the second half of this year and energy prices will decline, he forecast.

“After 2022, economic growth slows and inflationary pressures ease,” he added.

Some economists worry that the U.S. Federal Reserve’s campaign to raise interest rates steadily through this year will spark a recession.

The CBO disagrees.

Instead, it foresees the U.S. economy growing 3.1 percent in this year’s final quarter, compared to 5.5 percent in 2021’s last three months.

The agency sees growth slowing to 2.2 percent in 2023 and 1.5 percent in 2024 because interest rates will be higher and federal supports will end.

Inflation will slow to a relatively tame 4.8 percent in 2022’s final three months, then slack back to 2.7 percent in 2023 and 2.4 percent in 2024, finally approaching the Fed’s stated 2-percent target rate.

Unemployment will remain low, standing at 3.4 percent next year and 3.8 percent in 2024, the CBO believes.

A caveat: the CBO’s numbers were based on data gathered in March, before the Ukraine war, Western sanctions, and China’s widespread lockdowns scrambled supply lines and gave additional fuel to inflation.

TREND FORECAST: We disagree with the CBO. Again, their forecast was made before the Ukraine War and as we have extensively detailed in this and previous Trends Journals, there are a series of elements driving up prices that will not be easily fixed. Thus, we maintain our forecast for Dragflation: Declining GDP and rising inflation.