NEW YORK (Reuters) - A sweeping U.S. budget deal and lower interest rates will slice projected budget deficits nearly in half over the next 10 years, the nonpartisan Congressional Budget Office reported on Wednesday.
* CBO reported that the United States will rack up $3.487 trillion in cumulative deficits over 10 years, some $3.3 trillion below its previous projection.
“It’s pretty optimistic, but how many caveats do you have in there? They are putting their credibility on the line. Their projections are based on such outrageous assumptions. You can’t believe what they say. Obviously, the politicians could use these numbers for grandstanding and their re-election campaigns.”
MARC PADO, U.S. MARKET STRATEGIST, CANTOR FITZGERALD & CO. IN SAN FRANCISCO
“If you bring rates down and get the economy moving you get a double whammy and actually adjust the total budget deficit annually by $600-800 for the year that would be tremendous, that would obviously blow a lot of the estimates out of the water.
JAMES GAUL, A MONEY MANAGER AT BOSTON ADVISORS LLC IN BOSTON
“I don’t think this will have much of an impact on equities today. In some ways this is a known quantity, but looking forward this can have a profound impact because of how this impacts GDP. This is better than what was originally projected, but these are still really big numbers and it remains theoretical.”
DAVID WATT, SENIOR CURRENCY STRATEGIST, RBC CAPITAL MARKETS, TORONTO
“The 10-year U.S. budget deficit being cut by half is certainly progress because it shows that the debt situation seems to be under control. But there would be challenges ahead. Growth in the coming years may be more difficult to come by. They don’t seem to be running surpluses for a very long period of time. It’s a situation that requires nominal growth to be higher than interest rates.
“And even with a $3-1/2 trillion deficit over a decade, somebody has to buy those Treasuries. Unless U.S. residents suddenly develop a desire for U.S. Treasuries, they would have to sell those largely to foreigners.”
“Overall, those figures are better, but they are by no means a sign that the U.S. reversing course. It seems like they’re doing it on hopes for economic growth and low interest rates. That’s just like keeping the fingers crossed and keeping the rabbit’s foot in the back pocket.”
“This type of news is mildly positive for stocks, and the interest rates market is selling off a bit. But I think this has do with more technical factors with rates already so low and supply this week. If you think the deficit is going to be lower, I would think that longer yields would go even lower. To say that these deficits will go down ahead of the election, it’s hard for me to swallow. I would discount what’s being estimated currently.”
CHARLES LIEBERMAN, CHIEF INVESTMENT OFFICER, ADVISERS CAPITAL MANAGEMENT LLC, HASBROUCK HEIGHTS, NEW JERSEY
“I’m not inclined at this point to look at long-term forecasts of the U.S. budget deficit as written in stone, because the budget is clearly a policy issue that is being debated as we speak.”
“We do know that with policy as it is today, the budget deficit is going to be fairly large for as far out as we can see. Congress has finally waken up to the realization that the budget deficit is out of control and therefore they must reduce it. Obviously that’s been the contentious debate.”
“A lot of things are being debated and that makes it really difficult to place any great emphasis on any particular number. The core concept is clear. that is that the U.S. must reduce its budget deficit.”
GENNADIY GOLDBERG, FIXED INCOME ANALYST, 4CAST LTD, NEW YORK
“It is definitely a step in the right direction, but we have had some economic slowing so it remains to be seen whether the income side of the equation holds up as well. Whenever the budget deficit is a smaller percentage of GDP that is always a good thing.
“The CBO is fairly reliable on this front, so if they say the budget deficit is going to be smaller, I am tempted to believe them. Obviously, if things go for the worse, they might not be that accurate.”