The US federal budget deficit has ballooned in August, with just one month remaining in the fiscal year, with the widening gap reaching $1.9 trillion for the first 11 months representing a 24% increase compared to the same period last year, Bloomberg reports, citing Treasury Department data.
The surge is primarily attributed to rising interest costs fueled by the Federal Reserve’s aggressive interest rate hikes.
August alone saw a deficit of $380 billion, contrasting sharply with a surplus recorded in August 2023 after accounting for calendar differences. This discrepancy is largely attributed to the accounting adjustment resulting from the Supreme Court’s decision to overturn the Biden administration’s student-debt forgiveness plan, which added $319 billion to the year-to-date deficit.
The escalating interest burden on outstanding US debt remains a significant drag on the budget. Interest costs for the first 11 months of the fiscal year totaled $1.05 trillion, a staggering 30% increase compared to 2023. This marks the first time interest costs have exceeded $1 trillion in a single year, although Treasury officials emphasize that as a share of GDP, the ratio was higher in the early 1990s.
The Federal Reserve’s ongoing campaign to combat inflation through interest rate hikes has made it more expensive for the federal government to issue debt. The weighted average interest rate on outstanding US interest-bearing government debt stood at 3.35% at the end of August, a 43 basis point increase compared to the same month last year and the highest since 2009.
Despite the substantial impact of the student-debt forgiveness accounting adjustment, Treasury officials note that when accounting for both this factor and the $135 billion in deferred taxes received due to natural disasters in 2023, the deficit for the first 11 months of the fiscal year would be roughly 7% wider compared to last year.
