The numbers: The U.S. government ran a record budget deficit of $3.1 trillion in the fiscal year that ended in September. The massive deficit reflected the government’s effort to support the economy ravaged by the coronavirus pandemic. The four pieces of legislation passed by Congress this year to combat the recession was by far the largest fiscal response to an economic crisis since the Great Depression of the 1930s. By comparison, the deficit in fiscal year 2019 totaled $984 billion.
What happened: The four cornavirus financial relief bills, including the $1.7 trillion CARES Act passed in March, were estimated by the Congressional Budget Office to cost $2.4 trillion combined. The last time the government ran deficits anywhere near this big relative to the size of the economy was during World War II. Total outlays were $6.55 trillion in the latest fiscal year, while receipts totaled $3.42 trillion.
Big picture: Experts say that the government will have to return to a sustainable deficit path, but that the tax hikes and spending cuts needed to accomplish this goal should be put off until the pandemic subsides. In an outlook, the CBO said that the fiscal deficit will remain elevated over the next decade. The lowest projected deficit over the next decade is $1.080 trillion in 2027, according to the CBO. Fed Chairman Jerome Powell and top economists have urged the two parties in Congress to put aside their differences and pass more fiscal relief, but talks on another relief package have lost momentum.
Market reaction: Despite the widening deficit, yields on 10-year Treasury notes
have traded in a tight trading range between 0.50% and 0.80% in the past four months.