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Starting next week, submitting Obituaries, In Memoriams or Cards of Thanks for our publications and online becomes easier! Simply visitSTORY CONTINUES BELOW THESE SALTWIRE VIDEOSORLANDO, Florida - Any hope of sustaining U.S. fiscal accounts at such stretched levels and keeping the fragile bond market equilibrium intact may have to hinge on avoiding any recession at all - a cycle-busting scenario that seems far-fetched to many.
Take the unemployment rate, currently at 3.9%. The non-partisan Congressional Budget Office's baseline scenario is for unemployment to rise to 4.2% this year, 4.5% in the following year, dip back to 4.3% in 2026, average 4.4% over the next two years and then average 4.5% over the five-year period through 2034.
Just how high would in part be determined by demand. But to be sure of keeping long-term borrowing costs under control the Federal Reserve may have to step in, U-turn on its balance sheet reduction drive, and resume full-on quantitative easing. No economic indicator moves the bond market more than jobs and inflation data. As Alex Etra at Exante Data notes, most of the increase in nominal bond yields over the last 18 months has been around non-farm payrolls and consumer price index and personal consumption expenditures inflation reports.The CBO's baseline projections show the U.S. budget deficit widening to 6.1% of gross domestic product next year and not shrinking below 5% for the next decade.
International Monetary Fund estimates for the"general government fiscal balance" show the annual deficit out to 2029 even wider, from 6.0% to 7.1% of GDP. "Empirical evidence suggests that all else being equal, a 1 percentage point increase in the U.S. primary deficit is associated with a rise in term premiums of about 11 basis points in the quarters that follow," IMF economists found.
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