The U.S. budget deficit for the 2010 fiscal year ended Sept. 30 is likely to be close to 10 percent of gross domestic product, or almost as large as the previous year’s shortfall, a Treasury official said.
“We expect this year’s deficit to be a similar or slightly lower percentage of GDP,” said Mary Miller, assistant secretary for financial markets, in remarks prepared for a conference in New York. She said the economy is unlikely to sink back into a recession, although the recovery will take time.
The worst recession since the Great Depression cut tax revenue while boosting expenses, contributing to a deficit of $1.4 trillion in fiscal 2009. Federal Reserve Chairman Ben S. Bernanke yesterday said lawmakers should adopt rules that limit federal spending or debt to put the nation on a more sustainable fiscal path.
Miller, in her speech to a Futures Industry Association conference, also said the Fed’s decision to purchase Treasury securities in the secondary market won’t affect debt management.
“The Federal Reserve remains a very large investor in our market,” Miller said. “I would like to underscore that their decision to purchase Treasuries in the secondary market does not, and will not, impact our debt-management strategy.”
The Fed in August began buying Treasuries with the proceeds from its mortgage-backed securities portfolio. Bernanke has signaled during the past two weeks that policy makers may restart large-scale asset purchases as soon as their next meeting Nov. 2-3 in a bid to boost economic growth.
Miller said the Treasury manages its debt sales to borrow at the lowest cost over time. “Fed monetary-policy decisions are independent of that calculus,” she said.
The Treasury’s calendar of securities sales, for now, strikes a balance between government financing needs and marketplace demand for U.S. debt, she said. The Treasury is trying to maintain this balance while gradually reducing auction sizes “at a steady pace.” Borrowing amounts are expected to stabilize in the “near to medium term,” she said.
Domestic ownership of Treasury securities has grown over the past two years, Miller said. She said foreign ownership has grown in absolute terms although not in terms of market share.
Miller said she is confident that the futures market for Treasury securities will remain “highly liquid.” She said the Dodd-Frank financial regulation bill enacted this year will make futures markets safer and more transparent.
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