CBO: Federal deficit projected at $1.35T

WASHINGTON (AP) — The latest congressional budget estimates out Tuesday predict a $1.35 trillion deficit for this year as the economy continues to slowly recover from the recession.

The Congressional Budget Office report predicts a sluggish economic recovery and continued high deficits that present twin political problems for President Barack Obama and his Democratic allies.

The report sees a slow rebound of the economy, with unemployment averaging 10.1 percent this year as the economy grows by just over 2 percent. It would grow only slightly more next year with an unemployment rate of 9.5 percent.

"Economic growth in the next few years will probably be muted in the aftermath of the financial and economic turmoil," the CBO report says.

The latest estimates also see a $1.35 trillion deficit for the current budget year, dropping to $980 billion next year - but only if a host of tax cuts enacted under President George W. Bush are allowed to expire.