U.S. Treasury Lowers July-September Borrowing Need by 7% to $350 Billion
The U.S. Treasury Department lowered its estimate for government borrowing from July through September, reflecting a reduction in federal spending.
Borrowing will total a net $350 billion in the current quarter, compared with an estimate three months ago of $376 billion, the department said in a statement today in Washington. The Treasury also projected borrowing of $380 billion in the three months to Dec. 31.
The U.S. is financing a budget deficit the Obama administration projected will reach a record $1.47 trillion this year, even as yields on Treasuries have reached the lowest level during an economic expansion since the Eisenhower administration. Bond dealers predicted a $1.35 trillion deficit in fiscal 2010 and a $1.21 trillion deficit in 2011 in a survey provided to the Treasury before this week’s announcements.
“Significant progress has been made since the recovery began in mid-2009,” Alan Krueger, the Treasury’s chief economist, said in a separate statement today. “The economy is now growing solidly, with business investment on the rise, and firms once again adding to their payrolls.”
In the quarter that ended June 30, the Treasury borrowed $344 billion, compared with the previous estimate of $340 billion. The department said its forecasts assume a cash balance of $270 billion for Sept. 30 and for the end of December.
Fed Program
Today’s estimates include $200 billion for a special program for helping the Fed finance its operations. The program was scaled back while Congress debated how to raise the debt ceiling.
“If the economy emerges from the recent soft patch with only a minor shortfall in growth and no major new fiscal stimulus initiatives, the October-December period is likely to be the last quarter in which Treasury borrowing will record a significant year-over-year increase,” Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, said in a note to clients today.
“We think borrowing is likely to start falling on a year- over-year basis by the first quarter of next year,” Crandall said.
When the Treasury sells bills at the Fed’s behest through the Supplementary Financing Program, it drains reserves from the banking system and makes the central bank’s job of controlling interest rates easier.
Fiscal Year
The outlook Treasury released today, combined with borrowing so far in the fiscal year that started Oct. 1, means net borrowing for this year will be $1.44 trillion, compared with a previous forecast of $1.46 trillion in May. That’s less than the record $1.79 trillion last year.
The Treasury’s quarterly debt sales announcement is scheduled for Aug 4.
Auctions of long-term debt are projected to be smaller than the total of $78 billion sold in May, when the Treasury sold $38 billion in three-year notes, $24 billion in 10-year notes and $16 billion in 30-year bonds. The median forecast of six analysts surveyed predicted a $4 billion cut in the three-year note, with the other two auction sizes unchanged.
The Treasury asked bond dealers last month for their economic and budget forecasts for fiscal years 2010 and 2011, as part of an effort to trim auction sizes as the government’s financing needs decline.
The U.S. economy expanded at a 2.4 percent annual rate in the second quarter as consumer spending slowed, figures from the Commerce Department showed last week. Companies probably added about 90,000 jobs in July, according to the median estimate in a Bloomberg News survey ahead of the Labor Department’s employment report on Aug. 6. The jobless rate is forecast to rise to 9.6 percent from 9.5 percent.
The economy “is expected to grow at a moderate pace going forward, producing gains in private payrolls, although the unemployment rate -- which is typically slow to decline -- will likely remain elevated in the near term” Krueger said.
To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net; Ian Katz in Washington at ikatz2@bloomberg.net
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