Today, the Congressional Budget Office released a new report, titled "The Budget and Economic Outlook: An Update." In it, the CBO predicts that the budget deficit for fiscal year 2012 will be $1.1 Trillion.
CBO Director Douglas W. Elmendorf will make remarks and take questions from reporters at a news conference to discuss the findings.
The report also warns lawmakers about the risk of the "fiscal cliff," which refers to the combination of tax hikes and spending cuts that would take place on January 1, 2013, unless new agreements are reached. The report states that, should these measures be allowed to take effect, the economy would likely go into recession early next year, with GDP contracting around 0.5 percent.
If the fiscal cliff is avoided, the CBO estimates GDP growth of around 1.7 percent. This represents a lowering of previous forecasts. Elmendorf attributed this to a clearer picture of the fiscal health of the nation.
Elmendorf said that eventually the government will need to reduce the deficit, either through tax increases, significant governmental service reductions or both.
Asked why the GDP growth is so low, Elmendorf cited the slack in the housing stock with overbuilding leading up to to the financial crash in September 2008, which results in a weaker demand for housing construction. Restraint in spending by local governments is also slowing recovery, said Elmendorf, along with a decline in personal fortunes due to stock market loses and decreases in property values.