Unless it wants to go back to buying treasuries, the Federal Reserve may have to lower rates.
Share to linkedinASSOCIATED PRESSFor the first time in seven years, the U.S. government’s budget gap swelled to more than $1 trillion, as higher government spending outpaced federal tax collections.
Since last October, increased military spending, rising interest rates on government debt, and weak revenues earlier in the year have all caused the deficit to rise by 19%, to $1.07 trillion—compared with $898 billion a year earlier, according toRevenue growth has lagged the broader economy, while federal spending has steadily trended upward, particularly in sectors like defense and medicare.
Government spending rose 7% to $4.1 trillion, eclipsing federal tax receipts, which only grew 3% to $3.1 trillion. It remains unclear whether the budget gap will surpass $1 trillion for the full fiscal year, as it’s likely that the year-end deficit will narrow after September, which usually produces a surplus thanks to quarterly tax payments being due.for the full year, compared to $779 billion in fiscal 2018.
The CBO predicts that next year, the annual deficit will easily top $1 trillion, and the budget gap won’t fall below that mark for the next decade.At such ballooning levels of national debt, the Federal Reserve will now have yet another reason to lower interest rates. While popular reasons for a rate cut include a global economic growth slowdown, low inflation, and the trade war with China, the sheer size of government debt will also exert pressure on the Fed as it looks to ease monetary policy.
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