U.S. Treasury to Scale Back Fed Program to Avoid Debt Ceiling

By Rebecca Christie

Sept. 16 (Bloomberg) -- The U.S. Treasury Department plans to cut back its borrowing on behalf of the Federal Reserve as it seeks to keep government debt under a legal limit.

The Treasury will reduce the outstanding borrowing in its Supplementary Financing program to $15 billion “in the coming weeks,” the department said in a statement in Washington. The Treasury has been keeping the account, set up last year to give the central bank more flexibility as it undertook unprecedented lending, at about $200 billion.

Today’s announcement comes as the Obama administration presses lawmakers to lift the $12.1 trillion debt limit, which Treasury Secretary Timothy Geithner warned last month may be reached as soon as mid-October. Geithner’s predecessors sometimes had to shuffle federal accounts in order to keep the debt under the limit while Congress debated increases.

“This action is being taken to preserve flexibility in the conduct of debt management policy,” the Treasury said in its statement today. The Supplementary Financing Account will drop as outstanding bills mature and aren’t rolled over, it said.

The U.S. Chamber of Commerce and other business groups have urged the Senate to move forward so as not to hurt U.S. credibility or threaten the economic recovery.

“Raising the statutory debt limit is critical to ensuring global investors’ confidence in the creditworthiness of the United States,” wrote the chamber, in a Sept. 9 letter also signed by the Business Roundtable, Financial Services Forum, the Financial Services Roundtable, National Association of Homebuilders and National Association of Manufacturers.

Fed Chairman Ben S. Bernanke has said the central bank wouldn’t depend on the Treasury to continue with the Supplementary Financing Program.

“Although the Treasury’s operations are helpful, to protect the independence of monetary policy, we must take care to ensure that we can achieve our policy objectives without reliance on the Treasury,” Bernanke said in July.

To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net.