to combat the impact of covid-19, the deficit dropped by the greatest amount ever in 2022, falling from close to $3 trillion to roughly $1 trillion. But rather than continue to fall to its pre-pandemic levels, the deficit then shot upward. Budget experts now project that it will probably rise to about $2 trillion for the fiscal year that ends Sept. 30, according to the Committee for a Responsible Federal Budget, a nonpartisan group that advocates for lower deficits.
Normally, such large spending increases occur either during or shortly after recession…This is intentional as the government tries to stimulate aggregate demand and push down the unemployment rate. This happened in the late 1970s, but this policy only fed double-digit gains in inflation. To place today’s fiscal largesse into context, the current fiscal YTD spending clip is the fastest since 2009 when federal expenditures were up 22%. But the economy was in deep recession then, and the unemployment rate was approaching 10%. The other instances when government spending was like today were around downturns, such as 1981-82, 1990 and 2002.a self-perpetuating inflation-deficit spiral
. That decline was driven by the lousy stock market performance last year, which was driven by the Federal Reserve’s interest rate hikes. So, it is fair to say the spending-fueledInflation Is Set to ReaccelerateFederal Reserve Bank of Cleveland
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