White House pencils in slowing economic growth, higher inflation in new forecasts

The Biden administration dramatically cut its forecasts for economic growth and upped inflation projections, according to new estimates published on Tuesday by the White House's budget office.

Why it matters: The new forecasts reflect the drastically different economic reality the Biden administration faces — including disruptions stemming from Russia's invasion of Ukraine — since it last released projections.

Catch up quick: The figures are part of the White House's "midsession review," which updates projections made in the administration's fiscal year budget for 2023, released in March. Some of the assumptions about the economy that underpinned those budget estimates were finalized in November 2021. A lot has changed since then.

• The latest round of forecasts, released on Tuesday, were completed in early June. They do not reflect any impact from legislation passed since then, including the CHIPS Act and the Inflation Reduction Act.

By the numbers: The White House now estimates that economy will grow 1.4% this year, and 1.8% in 2023. That’s a sharp downgrade of previous estimates: 3.8% and 2.5%, respectively.

• The White House expects inflation — as measured by the Consumer Price Index — to slow to 6.6% in the final quarter of this year, more than double what the administration last anticipated. The White House sees inflation plummeting to 2.8% by the end of 2023, a half-percentage point higher than the earlier estimate.
• The administration’s estimates for the unemployment rate, however, were largely unchanged. In fact, the White House forecasts the jobless rate in 2022 will average 3.7% — slightly lower (by 0.2 percentage point) than its prior forecast.

Worth noting: The White House also revised down its projected budget deficit to $1 trillion for 2022, a $383 billion reduction from its forecast in March.

• Factors lowering the deficit projection include better-than-expected tax receipts and "technical re-estimates" that resulted in a net decrease in Medicare and Medicaid outlays.
• Higher interest rate payments on federal debt — as a result of the Federal Reserve’s rate hikes — will help push up deficits in 2023, the estimates show.
• Officials project a $1.3 trillion deficit next year before rising to $1.6 trillion in 10 years.

The bottom line: While more sour than previously forecast, the estimates taken together reflect the administration's optimistic expectation of a soft landing for the economy — even as the Fed raises interest rates swiftly to crush inflation.