It comes as no surprise that the Biden administration’s $849.8 billion Fiscal Year 2025 defense budget request constitutes a no-growth budget. Pointing to the 2023 Fiscal Responsibility Act (FRA) as a constraining factor, the Department of Defense leadership asserts that the budget could only grow by 0.9 percent.

But, in fact, the budget is declining in real terms. The only question is the magnitude of that decline.

How much the budget actually will embody a decline depends upon assumptions about both the rate of inflation and the prospects for congressional approval of the administration’s request. With respect to inflation, the Office of Management and Budget appears to be assuming a rate of 2.1 percent over FY24. That would mean that the budget actually represents a real decline that would amount to just over $9 billion. The Congressional Budget Office has assumed a slightly higher rate of inflation, resulting in approximately an $11 billion drop from the FY24 administration’s defense budget request.

In practice, however, defense inflation is greater than the inflation rate for Personal Consumption Expenditure, which forms the basis of both the OMB and CBO estimates. The DOD most recently estimated defense inflation for FY25 at 2.41 percent, resulting in a real decline of about $13 billion.

Finally, it is not at all clear when the Federal Reserve will conclude that........

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