(Adds comments on cash buffer, tax revenues)
WASHINGTON, April 30 (Reuters) - The U.S. Treasury on Wednesday said it will reduce coupon auctions in the coming weeks and months because a narrowing in the federal budget deficit has reduced the government's borrowing needs.
Washington ran up huge debts in the wake of the 2007-09 recession as unemployment benefits soared and the government pumped vast sums into economic stimulus programs.
But over the last year, as the economy has firmed, rising tax receipts have sharply narrowed the deficit and the Treasury is reacting by adjusting the sizes of its debt auctions.
"(The) Treasury expects to gradually decrease coupon auction sizes over the next quarter," said Treasury Assistant Secretary Matt Rutherford.
While government data on Wednesday showed the economy sputtering in the first quarter, Rutherford said tax receipts have continued to post strong gains and the Treasury felt confident in its projections for the government's financing needs.
The department reduced auction sizes last summer but then paused the cuts in the fall out of concern that a political showdown over fiscal policy would hurt the economy and slow progress in reducing the deficit.
During the dispute, Washington came perilously close to defaulting on its obligations, but politicians struck deals over the winter to craft budget legislation and suspend a limit on government borrowing.
At a briefing on Wednesday over the government's debt issuance plans, a Treasury official told reporters the United States will reduce auction sizes for 2-year and 3-year notes by $1 billion in each month over the coming three months.
Rutherford said the Obama administration had discussed with Wall Street firms the possibility that the Treasury could maintain a larger cash cushion. Last year, he said, the Treasury on average ended the day with about $60 billion in cash, but sees a case for holding more.
That would help the government weather shocks to its income stream, including future fiscal arguments in Washington. If the Treasury ever hit its debt ceiling, for example, it would rely on its cash cushion to pay its bills until politicians raised the borrowing limit.
The Treasury's revenues could also be hit by natural disasters or other major events that might disrupt the economy.
"It is important to impress upon people that $60 billion is not that much money," Rutherford said at a news conference. He said the Treasury's discussions on the matter were focused on revenue risks other than those posed by the debt ceiling.
The Treasury also announced it would seek public comment in the coming quarter on a new rule it will propose on reporting requirements for investors holding big portfolios of Treasury securities. (Reporting by Jason Lange; Editing by Paul Simao)