The U.S. budget deficit is growing faster than expected and President Donald Trump's trade war is weighing on the economy, according to a new Congressional Budget Office forecast that highlights key challenges ahead of the 2020 elections.
The shortfall is set to widen to $1 trillion by fiscal year 2020, two years earlier than previously estimated, according to the non-partisan group's annual budget outlook released Wednesday in Washington. That's up from an estimated $960 billion in the 12 months that ends Sept. 30. The CBO said in January saw a gap of $890 billion next year and didn't see it topping $1 trillion until 2022.
Widening the nation's fiscal gap is legislation that raised spending levels, though the effect will be somewhat moderated by the expectation of lower interest rates, which reduces the government's debt-service burden. Trump has badgered the Federal Reserve to cut its policy rate, and market rates are low, too.
It would be the first time the deficit exceeded the $1 trillion mark since 2012, as the economy recovered from the financial crisis and could give Democrats potential ammunition as Trump runs for re-election. Fiscal hawks say the rising wave of red ink also limits the federal government's ability to provide stimulus in the event of a downturn.
The CBO's report rebuts a claim by White House economic adviser Larry Kudlow that the deficit is "coming down, and it's coming down rapidly." Kudlow made the comments a year ago, and it's message that he has stuck to. Last month he said that the deficit is "quite manageable" and is not "a huge problem."
He may have a point when the projected deficits are measured as a share of the economy. According to the CBO's numbers, the deficit will be 4.6% of gross domestic product and stay under 5% of GDP through 2026. That's about half the level it reached during the financial crisis a decade ago.
The bigger problem is government debt, which is forecast to rise as a share of the economy over the next decade, from 81% this year to 95% by 2029.