Could U.S. balance budget by 2016?

CME Group's chief economist Blu Putnam said at INTL FCStone's 11th Annual Dairy Outlook Conference Wednesday that the U.S. could have a balanced budget by the 2016 fiscal year.

Putnam pointed out that the U.S. hasn't had any expense growth in the last four years, while revenue is growing again at about 8% per year.

In 2009, the gap between revenue and expense was the equivalent of 10% of U.S. GDP. Now, it's the equivalent of 3%, which Putnam said is considered "an okay number."

"We're in a period of increasing fiscal stability," he said. "By this time in 2016, that gap could easily be zero."

Labor markets are healthier than people think, Putnam said. He thinks the Fed will share his view and could possibly raise interest rates  between April and June next year.

The largest problem in labor markets wasn't in the private sector, Putnam said. Private sector job creation has been about average compared to the last recession, while 817,000 government jobs have been lost over the last four years, which has never happened in an expansion period.

This issue wasn't attacked by the Fed's quantitative easing, he said.

Regardless, Putnam said this drag on the labor market is gone — we can now add 200,000 jobs per month on average, and federal data shows the quit rate is rising and the layoff rate is dropping.

Putnam is most worried about politics influencing global financial markets this year and pointed to some key events to watch:

  • Scottish independence vote — September 2014
  • Repurcussions from the EU parliament election
  • Brazilian presidential election — October 2014
  • India's new prime minister — May 2014
  • Russia's post-Crimean annexation ambitions
  • Russia-China natural gas agreement
  • U.S. Keystone pipeline decision

 

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