Mnuchin Says Rising Budget Deficits to Be Focus ‘Over Time’
Treasury Secretary Steven Mnuchin said that “over time” the U.S. will need to look into the sharply rising budget deficits created by the multi-trillion-dollar coronavirus support packages.
Right now “we’re in a war,” Mnuchin said on “Fox News Sunday.” “We’re going to do whatever we need” to support the economy.
The good news, Mnuchin said, is that “interest rates are extremely low and we’re locking in long-term rates” at those levels.
And he predicted the economy would “really bounce back in July, August and September” as the closures related to stopping the spread of Covid-19 recede.
The federal government’s stimulus package aimed at containing the economic hit of coronavirus is set to expand the budget deficit by $1.6 trillion this fiscal year, according to the Congressional Budget Office.
Overall, that would send the shortfall to a record $3.7 trillion for the period, as the economy contracts and spending soars. The deficit would be the equivalent of about 18% of GDP, the highest since World War II.
The pandemic forced a sudden stop in the U.S. economy, with an unprecedented hit: the country’s GDP likely shrank 3.9% in the first quarter on an annualized basis, the steepest since 2009, according to a Bloomberg survey of economists. And in the second quarter, that worsens: some economists see as much as a 40% contraction, the most in recorded data that goes back to the 1940s.
While deficit hawks worry high debt could risk U.S. credit quality, interest rates remain low and investor appetite remains. The benchmark 10-year note yielded 0.6% on Friday, compared to 2.5% a year ago.
Kevin Hassett, a senior White House economic adviser and former chairman of the Council of Economic Advisers, also talked about skyrocketing federal debt in an interview on ABC’s “This Week.”
“The debt level in the U.S. has climbed up to the point where, in the economics literature, we see, that it can be a sort of long-run negative for growth,” Hassett said. “As we go into the next phase of legislation we need to think about long-run things that we can do to try to get ahead of the curve on debt.”
Treasury and the Small Business Administration are preparing to roll out a second tranche of the Paycheck Protection Program, designed by Congress to help small businesses get through Covid-19-related shutdowns.
Mnuchin said he was confident that the average loan size would be smaller than in the first round, when funds ran out in less than two weeks and several larger, publicly traded companies -- including national restaurant and hotel chains -- obtained loans.
Many banks and businesses also complained about glitches that prevented them from issuing or applying for loans in the first round.
“I think you’re going to see this move in the right direction and I think you’re going to also see in this round the average loan size go down significantly,” Mnuchin said.
The first round of PPP loans “impacted about 30 million workers. I think this round will be about the same. That will be close to 50% of the private workforce,” Mnuchin said. “So I actually hope we run out of money quickly so we can get the money into the workers’ pockets.”
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