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Economic Commentary

Do Deficits Cause Inflation?

When the Reagan administration first took office, it forecast federal-budget deficits of $45 billion for fiscal year (FY) 1982 and $23 billion for FY 1983, and it projected a balanced budget by FY 1985. Fiscal year 1982, however, ended in September with a record $110-billion deficit, and most budget analysts now expect a deficit of approximately $170 billion to $180 billion in FY 1983. Moreover, the deficit could easily remain above $100 billion through FY 1985 unless Congress cuts expenditures or increases taxes. The federal government must finance these deficits by selling Treasury securities either to the Federal Reserve System or to the public.

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This paper and its data are subject to revision; please visit for updates.

Suggested Citation

Humpage, Owen F. 1982. “Do Deficits Cause Inflation?” Federal Reserve Bank of Cleveland, Economic Commentary 11/1/1982.

This work by Federal Reserve Bank of Cleveland is licensed under Creative Commons Attribution-NonCommercial 4.0 International