Debt Limit Approaches as Fed Starts Shrinking Balance Sheet
July 26, 2017
Treasury Secretary Steve Mnuchin has continued to raise awareness that the debt ceiling is approaching, despite slow movement by Congress. The Federal Reserve has also signaled that they will begin winding down their balance sheet. Inventories of oil have fallen recently, as well.
- Treasury Secretary Steve Mnuchin stated on Wednesday that the Treasury’s efforts to conserve cash until Congress raises the borrowing limit cost taxpayers significantly. Government debt hit the borrowing limit in mid-March, and the Treasury has been using measures since to raise cash to continue paying the government’s bills on time. Mnuchin stated, however, that this method has an estimated cost of $2.5 billion to taxpayers, and is only sustainable through September. Currently, the government is borrowing and making trust funds at slightly higher rates rather than borrowing in the market at lower rates. Mnuchin urged Congress to raise the debt ceiling prior to their August recess but has yet to receive a plan from Congress. The Congressional Budget Office estimates the Treasury will run out of room to pay the government’s bill by mid-October. [WSJ]
Economic Indicators & News
- Due to strong refining activity and an increase in exports, U.S. crude stocks fell sharply last week, while gasoline and distillate inventories dropped more than expected, according to the EIA Petroleum Status Report released today. Crude inventories fell by 7.2 million barrels in the week to July 21, a much further drop than the forecasted 2.6 million decrease. This brought U.S. inventories down to 483.4 million barrels, still above the five-year average but down almost 10 percent from their late March peak. Gasoline stocks fell by 1 million barrels, compared with expectations for a 614,000 barrel drop. U.S. crude futures were up to $48.17 a barrel, while Brent rose to $50.40 a barrel. [Reuters]
- Federal Reserve officials announced they would start running off their balance sheet “relatively soon.” Balance-sheet normalization, which could begin as early as September, is another policy milestone in the nine year-long economic recovery. Fed watchers anticipate that the inclusion of the term “relatively soon” could signal the central bank announcing the timing of the reduction program at its next meeting, scheduled for September 19-20. Following the Feds statement, both U.S stocks rose and 10-year Treasury yields fell as a result. [Bloomberg]