Rising receipts may recast federal budget debate

D. William Kohli

D. William Kohli
Co-Head of Fixed Income, 06/13/17

Rising receipts may recast federal budget debate

The true measure of underlying economic strength in the United States is not showing up completely in GDP numbers or employment data. Improvement in the federal balance sheet is nothing short of outstanding.

Federal revenues

Corporate tax receipts are above expectations. The same goes for personal tax receipts. Agency paper is paying cash back into federal coffers far above official projections. Versus two years ago, we have reversed trend, and in the next six months, we think this improvement in the balance sheet will be a major talking point.

For those worrying about the effect of higher rates on U.S. government debt, the Fed and Treasury have shown no concerns. These officials have worried more about deflationary spirals, confidence in the market, and access to liquidity, all of which appear to be improving. The possibility of higher inflation down the road would trouble them little. In fact, the Fed and Treasury could even see higher potential long-term inflation as a sign that the economy has moved past the difficult and more extraordinary challenges of recent years.