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Letter to the Honorable Kent Conrad 1 (February 2008)

handle is hein.congrec/cbo8531 and id is 1 raw text is: CONGPESS ONAL BUDGET OFFICE Peter R. Orszaig, Director LI S. Congress VV IShinrtn, DJC 2'Y515 February 15, 2008 Honorable Kent Conrad Chairman Committee on the Budget United States Senate Washington, DC 20510 Dear Mr. Chairman: In preparation for new baseline projections that will be released at the beginning of March, the Congressional Budget Office (CBO) has updated its macroeconomic fore- cast. CBO has occasionally issued revisions to the forecast it publishes in January, but they are relatively uncommon. This revision is motivated by three recent develop- ments: new data about the weakness of the economy, actions by the Federal Reserve, and the stimulus package passed by the Congress and signed into law by the President. CBO's previous forecast, which was embodied in budget projections released in Janu- ary, was finalized in early December 2007. However, data released since then- especially regarding the labor market-indicate that economic conditions are weaker than previously projected, and conditions in some segments of financial markets remain worrisome. Other indicators-such as production indices and information on retail sales and sales of new homes-also suggest a slowing in economic activity. At the same time, changes in monetary policy have been more substantial than CBO assumed in December, and fiscal policy stimulus has been enacted. The Federal Reserve reduced the target for the federal funds rate by 125 basis points in January, and financial markets anticipate further easing in the near future. In addition, the Economic Stimulus Act of 2008 will provide about $150 billion in tax rebates and business tax deductions in fiscal year 2008. CBO anticipates that the recent monetary and fiscal policy actions will provide significant support to the economy in 2008. The net effect of those developments since CBO0's previous set of projections is slightly stronger projected economic activity for 2008 (because the impact of monetary and fiscal policy stimulus slightly outweighs the deterioration in 0w bogV

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