*** The remainder of my remarks will address the federal budget, for which the incoming data suggest that the unified deficit has recently leveled out. With the economy continuing to improve, the deficit is more likely to decline than to increase in the year ahead. Nonetheless, the prospects for the federal budget over the longer term remain troubling.
As yet, concerns about the budget do not appear to have left a noticeable imprint on the financial markets. In recent years, even as fiscal discipline has eroded, implied one-year forward Treasury rates at long horizons, which history suggests are sensitive to changes in the fiscal outlook, have held fairly steady.