Deficit projection reduced to $642 billion, CBO says

The federal budget deficit will plummet to $642 billion this year, congressional budget analysts said Tuesday, reducing their previous forecast by roughly $200 billion.

The Congressional Budget Office credited recovering tax revenues and a one-time infusion of cash from mortgage giants Fannie Mae and Freddie Mac for the dramatic reduction, which puts the nation on track for its smallest deficits since the economic crisis hit in 2008.

Moreover, the nonpartisan Congressional Budget Office predicts that the deficit will continue to shrink, falling below 3 percent of the overall economy by 2015, a level economists consider to be economically sustainable.

While the CBO forecasts that deficits will begin rising again by the end of the decade as the baby boom generation taps into Social Security and Medicare, the sunnier outlook is calming Washington’s urgency in pushing for debt reduction.

Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.

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