The U.S. Treasury Department reported a budget deficit of $37 billion last month, which is down from $107 billion during this time last year. The short-term narrowing of the deficit is bitter-sweet news, because even as the national debt overall continues to rise, a wider and growing deficit is expected in the mid-term.
According to the CBO, budget deficits will continue to decline until 2015 and then they will sharply increase to extraordinary levels historically. The large budget deficits recorded in recent years have substantially increased federal debt, and the amount of debt relative to the size of the economy is now very high by historical standards,” the CBO stated.
“CBO estimates that federal debt held by the public will equal 74 percent of GDP at the end of this year and 79 percent in 2024 (the end of the current 10-year projection period),” the report added. “Such large and growing federal debt could have serious negative consequences, including restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis (in which investors would demand high interest rates to buy the government’s debt).”
Analysts polled by Reuters had expected a deficit of $78 billion, which was far higher than reported. However, the reported deficit was influenced by the monthly calendar timing. In other words, if adjustments were actually incorporated, Treasury said under the radar, then the monthly deficit would have been more like $77 billion.
Meanwhile, the Labor Department reported Thurday U.S. import prices increased by 0.6 percent on a month-to-month basis in March, beating Wall Street’s expectations of a 0.2 percent gain. However, export prices also increased by 0.8 percent, which was the biggest increase since 2012. Also, economists forecast a 0.2 percent bump.
The effect on the budget deficit from higher prices can be bitter sweet. While increases in export prices can lead to more revenue, it can also lead to less demand, which slows down production when drastic.
