The U.S. Treasury Department raised its net borrowing estimate for the current quarter, reflecting in part lower revenue, higher spending and higher issuances of state and local government securities.
The Treasury increased its estimate for July to September to $276 billion, which is $12 billion higher than projected in April. Treasury officials also see net borrowing of $316 billion in the quarter starting Oct. 1. In the quarter that ended June 30, the Treasury borrowed $172 billion, compared with a previous estimate of $182 billion.
“The increase is primarily due to lower receipts, higher outlays, redemptions of portfolio holdings by the Federal Reserve System and higher issuances of state and local government securities,” the Treasury said in a statement Monday in Washington regarding the current quarter estimates. The estimates set the stage for the Treasury’s quarterly refunding announcement Wednesday.
The Obama administration said Friday it is forecasting the federal budget deficit will be $1.21 trillion this year, down from $1.33 trillion projected in February. The Congress is seeking to resolve an impasse over the expiration of tax cuts and the onset of spending cuts at the end of the year that has led to warnings the U.S. could careen off a fiscal cliff.
“The amount of Treasury debt that these trillion dollar deficits are putting out to the markets is simply staggering with no relief in sight,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said by e-mail before the estimates were released. “Fiscal austerity is the focus in most of the rest of the world, but is nowhere in evidence here.”
Treasury benchmark 10-year yields fell to 1.5 percent from 1.55 percent late on July 27.
A Treasury Department official who briefed reporters as the information was being released said the redemptions of portfolio holdings by the Fed refer to the central bank’s so-called Operation Twist program. The Fed on June 20 extended the program to sell $267 billion of shorter-term securities and buy the same amount of longer-term debt through December.
The Treasury said its forecasts assume a cash balance of $60 billion for the July-to-September quarter and $40 billion for the quarter ending Dec. 31, 2012.
Federal Reserve Chairman Ben Bernanke, in prepared remarks, said July 18 that economic growth is slowing and inflation will probably remain at or below the Fed’s 2 percent objective after energy prices reversed their gains from earlier this year.
President Barack Obama and congressional Republicans remain at odds over how to reduce budget shortfalls. Unless a compromise is reached before Dec. 31, the government will come to a so-called fiscal cliff when $607 billion of automatic spending cuts and tax increases are triggered, which risks slowing the economy further or plunging the nation back into a recession.
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