The current account and Federal budget deficits have narrowed markedly over the past few years, indicating that the US economy is the closest it has been to both internal and external balance in more than a decade. This adjustment is even more remarkable when we consider that the US dollar has not suffered any severe decline and that US economic growth has been more vigorous than in some of its key trading partners, particularly in Europe and Japan. Faster economic growth should help to reduce the budget deficit more over the next couple of years and, even though that pick-up will pull in more imports, the current account deficit could also shrink further as the boom in domestic oil production reduces the reliance on imports.
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