The non-partisan Congressional Budget Office presented two potential economic situations to Congress Wednesday — one in which the federal deficit for fiscal 2012 is reduced by austerity to about $600 million from $1 trillion today and a second in which the budget deficit remains at current levels.
Under the scenario that involved budget reduction and austerity measures — a projection designed to serve as a benchmark for policy-makers to consider when legislating — the CBO predicted a second economic recession and 9 percent unemployment.
Talking heads on Wall Street went further to predict a severe recession because of reductions in federal spending, Larry Innis, legislative affairs representative of the Marine Retailers Association of the Americas, said in an email.
Under the scenario of sustained government spending, the CBO predicted a slowly declining unemployment rate and a gradual economic recovery.
“CBO expects the economic recovery to continue at a modest pace for the remainder of calendar-year 2012, with real (inflation-adjusted) GDP growing at an annual rate of about 2-1/4 percent in the second half of the year, compared with a rate of about 1-3/4 percent in the first half,” the report said. “The unemployment rate will stay above 8 percent for the rest of the year, CBO estimates, and the rate of inflation in consumer prices will remain low.”
“However, the outlook for the budget deficit, federal debt and economy are especially uncertain now because substantial changes to tax and spending policies are scheduled to take effect in January 2013,” the report said. “Therefore, CBO has also prepared projections under an alternative fiscal scenario, which embodies the assumption that many policies that have recently been in effect will be continued.”