Actual hit GDPNow nowcast of 2.3%, q/q AR (see Jim’s post for a discussion) Still, achieving Treasury Secretary Bessent’s 3% annual growth (in addition to 3% deficits and additional 3 million barrels oil) is going to be tough.
What does 3% look like compared to forecasts?
Figure 1: GDP (bold black), CBO projection (light blue), WSJ January survey (red squares), January IMF WEO (blue triangle), and 3% trend (tan line). Source: BEA, 2024Q4 advance, CBO, WSJ, IMF, and author’s calculations.
Given Bessent’s goal, the output gap would 4.8% by end-2028, using the CBO’s estimate of potential GDP. This implies that Mr. Bessent must be anticipating some sort of supply side miracle, coming from tax cuts or deregulation or divine intervention
This growth goal is even more implausible given the current law deficit in FY 2025 is projected to be about 6.2% by the CBO. Reducing the deficit to 3% would require shaving the deficit by about a trillion dollars. Since Trump is expected to eschew allowing the TCJA to lapse, the necessary spending cuts will be even larger. It’s hard to see how the 3% growth rate can be achieved given contractionary fiscal policy.
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