Wall Street Confirms It: Big Increases In The Budget Deficit Are On The Way

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Neither Goldman Sachs nor J.P.Morgan say it directly, but their latest economic forecasts effectively confirm what the Congressional Budget Office and many private analysts have been saying for some time: The Trump administration’s taxing and spending policies will increase the federal budget deficit very significantly over each of the next few years.

And these annual increases in the budget deficit will be on top of the 17 percent spike from fiscal 2017 to 2018 that has already occurred because of these policies.

Both Wall Street banks project that U.S. economic growth will slow considerably next year.

Goldman Sachs expects the economy to grow by 2.5 percent in both the fourth quarter of 2018 and the first quarter of 2019. Growth will be even slower over the rest of the year: 2.2 percent in Q2, 1.8 percent in Q3 and 1.6 percent in Q4.

J.P. Morgan’s estimates are similar.  The bank expects growth to slow to 1.9 percent in 2019.

Treasury and OMB have already projected a deficit of approximately $1.1 trillion in 2019, and that assumes the Trump administration’s mid-session review forecast of an increase in growth to 3.2 percent in 2019.

The new Goldman Sachs and J.P. Morgan forecasts also project lower growth than the forecast published most recently by the Congressional Budget Office. In its August economic update, CBO said real GDP growth (fourth quarter over fourth quarter) would fall to 2.4 percent in 2019 and then drop further to just 1.7 percent in 2020.

Assuming the stalemate between the Republican Senate, Trump White House and Democrat-controlled House that some are predicting and, therefore, that all current spending and taxing laws remain unchanged, the lower GDP growth will lead to even higher deficits than are currently forecast: $1.2 trillion or more in fiscal 2019 will definitely be possible. That would be a 46 percent increase over 2018 and an 80 percent increase over 2017.

Further legislated reductions in taxing or increases in spending — an infrastructure plan or permanent extension of the individual tax cuts, for example — would increase the deficit even further.

Follow Stan Collender on Twitter by clicking here at @thebudgetguy.

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