U.S. agency sees fiscal, Fed action helping economy
The U.S. economy is weaker than previously projected, but steps by Congress and the Federal Reserve to boost consumer spending and lower interest rates should improve the economic outlook for this election year, the Congressional Budget Office said on Friday.
"CBO anticipates that the recent monetary and fiscal policy actions will provide significant support to the economy in 2008," the independent congressional agency said in its latest report to lawmakers.
In an update of forecasts issued just last month, the budget office said that labor markets, retail sales and home sales were weaker than it had previously estimated.
But since then Congress enacted had an economic stimulus package that will inject $152 billion into the economy this year mostly through tax rebates to consumers and business investment incentives.
The Fed also has lowered interest rates significantly and taken other actions to ease a credit crunch.
The CBO said the effect of the fiscal stimulus and Fed action outweighs the negatives and that it was revising its overall projection for economic output this year to 1.9 percent this year, compared to its January projection of 1.7 percent.
But it said stimulated growth this year will take away some activity that otherwise would have occurred next year. So it revised the outlook for 2009 to 2.3 percent growth in Gross Domestic Product, down from 2.8 percent projected in January.
Inflation is expected to ease this year and next, the CBO said, largely because a rapid rise in both energy and food prices "temporarily exacerbated" inflation last year.
