The CBO just came out with a new update to their budget outlook. The bad news is that the budget deficit is expected to rise to $3.3 trillion in 2020 or about 16% of GDP, which is high. The good news is that the deficit basically returns to pre-crisis levels by 2023, and that interest costs long term are lower despite higher debt because of lower interest rates. Debt held by the public is expected to grow to 98% of GDP in 2020 and up to 107% of GDP by 2023.
One important thing to note (and I had to look this up) is that debt held by the public does not include debt held by the Federal Reserve, and they have been buying up enormous amounts of Treasury bonds. They announced a $500 billion dollar purchase of Treasury bonds on March 15th as well as an open ended purchase of Treasury bonds that was not widely publicized later on that month, and then they said they would buy at least $80 billion a month (or about $1 trillion a year) after that. That means a lot of that $3.3 trillion dollar deficit is going to be covered by bond purchases from the Fed, though its unclear exactly how much that might be, and its perfectly possible that the Treasury debt purchased by other investors and institutions besides the Fed might be just about as much in 2020 as it was in 2019. The deficit is projected to be about $2.3 trillion higher in 2020 than in 2019, but the Fed increased their purchases of Treasury debt by at least $1 trillion this year and perhaps even as much as $2 trillion.
The takeaway is that even without a lot of Fed purchases the budget will be OK in a few years and in even better shape long term because of lower interest costs. Plus, if the Fed keeps buying tons of Treasury debt this makes the deficit problem even less concerning, so that debt worries should not be limiting what we spend on getting our way through the economic difficulties created by the pandemic.
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