Budget office warns of rising US public debt

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US public debt remained on an unsustainable path and would reach 106 percent of economic output in 25 years versus about 74 percent currently, the Congressional Budget Office (CBO) said yesterday, marking a slight increase from projections made in September. The non-partisan budget referee agency attributed the changes in its long-term budget outlook based on current tax and spending laws to a slight downward revision in its economic growth projections, partly offset by assumptions of reduced interest rates and costs of health care. The revisions represent essentially no shift in the CBO’s view that despite some near-term relief, the federal deficits are unsustainable and could lead to another financial crisis in the long run. It attributes much of the increase in deficits and debt up until 2039 to the costs of caring for an aging population, especially the so-called Baby Boom generation. Meanwhile, the US economic recovery remained incomplete, with a still-ailing job market and stagnant wages justifying loose monetary policy for the foreseeable future, Federal Reserve chairwoman Janet Yellen said. In a strong defence of the central bank’s current stance, Yellen said early signs of a pick-up in inflation were not enough for the Fed to accelerate its plans for raising interest rates, a move currently expected in the middle of next year. That could change if data showed labour markets improving quickly than expected, she said. – Reuters

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