US deficit set to hit $2 trillion

The US federal deficit has topped $1 trillion for the first time and could grow to nearly $2 trillion by this fall, intensifying fears about higher interest rates, inflation and the continued strength of the dollar.

The deficit has been widened by the huge sum the government has spent to ease the recession, combined with a sharp decline in tax revenues. The cost of wars in Iraq and Afghanistan also is a major factor.

The soaring deficit is making Chinese and other foreign buyers of US debt nervous, which could make them reluctant lenders down the road. It could also force the treasury department to pay higher interest rates to make US debt attractive longer-term.

The treasury said on Monday that the deficit in June totalled $94.3 billion, pushing the total since the budget year started in October to $1.09 trillion. The administration forecasts that the deficit for the entire year will hit $1.84 trillion in October.

The June deficit was slightly better than the $97.0 billion most analysts had forecast.

Receipts during the nine-month period to June amounted to $1.588 trillion, eclipsed by outlays of $2.675 trillion.