US treasury boss says ‘over time’ US will need to look at its rising budget deficits

Mnuchin claims US is ‘in a war’, and treasury will do whatever is needed to support the economy

US treasury secretary Steven Mnuchin said that "over time" the US would 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”, Mr Mnuchin said on Fox News Sunday. “We’re going to do whatever we need” to support the economy.

The good news, he said, was 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 receded.


The US 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 per cent of GDP, the highest since the second World War.

The pandemic forced a sudden stop in the US economy, with an unprecedented hit: the country’s GDP likely shrank 3.9 per cent in the first quarter on an annualised 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 per cent contraction, the most in recorded data that goes back to the 1940s.

While deficit hawks worry high debt could risk US credit quality, interest rates remain low and investor appetite remains. The benchmark 10-year note yielded 0.6 per cent on Friday, compared to 2.5 per cent a year ago.

Skyrocketing debt

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 US 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,” Mr 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.”

The US treasury and the Small Business Administration are preparing to roll out a second tranche of the paycheck protection programme, designed by Congress to help small businesses get through Covid-19-related shutdowns.

Mr 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.