US Government Starts Fiscal Year 2025 With $257 Billion Budget Deficit

The national debt clock at a bus station in Washington on Aug. 6, 2024. Madalina Vasiliu/The Epoch Times

The U.S. government kicked off fiscal year 2025 with a $257 billion budget deficit, according to the October Monthly Treasury Statement.

Last month’s shortfall represented an approximate 289 percent increase from a year ago. It also was worse than the consensus estimate of $211 billion.

The 12-month rolling deficit—between November 2023 and October 2024—is $2 trillion.

Daily borrowing amounts to $8 billion, according to estimates from the Committee for a Responsible Federal Budget (CFRB).

Federal outlays rose by 25 percent year over year, totaling $584 billion. October spending was driven by Social Security ($125 billion), defense ($103 billion), and health ($85 billion).

Net interest payments—the federal government’s interest payments offset by interest income—were $80 billion, the fourth-largest budgetary item. This was down by 7 percent from October 2023, the first year-over-year drop since mid-2023.

Gross interest costs—payments on debt held by the public as well as intragovernmental payments—were $81 billion. The Treasury Department estimates that gross interest costs will total $1.218 trillion this fiscal year.

Tax receipts declined by 19 percent from a year ago, with the federal government collecting nearly $327 billion in revenues.

Officials at the Congressional Budget Office (CBO) estimated in the latest monthly budget review that the shortfall would have been smaller if not for deferred tax payments and shifts in certain federal payments.

In fiscal year 2024, the federal government registered a $1.83 trillion deficit, the largest outside of the pandemic era.

The federal government is on the brink of unlocking another key milestone.

According to the Treasury’s Debt-to-the-Penny Dashboard, the national debt stood at $35.945 trillion as of Nov. 8.

‘Fiscal Storm on the Horizon’

With two months until President-elect Donald Trump officially begins his second term in the White House, the CFRB says he and the 119th Congress “will soon need to confront” the “fiscal storm on the horizon.”

“In the next two years, debt will exceed its all-time record share of the economy; in less than 10 years, Social Security beneficiaries face automatic benefit cuts if policymakers continue to do nothing to fix it,” Maya MacGuineas, president of the independent policy organization, said in a statement.

MacGuineas alluded to near-term fiscal challenges, including negotiations surrounding the debt ceiling and expiring tax provisions.

Speaking to reporters at last week’s post-meeting press conference, Federal Reserve Chair Jerome Powell reiterated that the long-term fiscal path is “unsustainable” and called it a “threat to the economy.”

Federal Reserve Chair Jerome Powell answers a question at a press conference in Washington, on Nov. 1, 2023. Kevin Lamarque/Reuters

“The federal government’s fiscal path, fiscal policy, is on an unsustainable path,” Powell said. “The level of our debt relative to the economy is not unsustainable, the path is unsustainable.”

Estimates of how much the national debt will swallow the U.S. economy vary.

The nonpartisan budget watchdog projects that federal debt held by the public will reach 116 percent of GDP in this decade. The Institute of International Finance projects that the debt-to-GDP ratio could reach 150 percent in the coming years.

Jeff Schmid, president of the Federal Reserve Bank of Kansas City, says the “tremendous” growth in government debt will affect the central bank’s monetary policy efforts.

Long-term Treasury yields have rocketed, even as the central bank cuts interest rates. Market watchers say the sudden and aggressive rise has been fueled by concerns over the U.S. government’s fiscal outlook.

Washington has issued trillions in bonds to manage the ballooning deficit and rising interest payments. Bond issuance “is expected to continue growing at a very rapid rate,” which could have a factor in interest rates, Schmid noted.

“As such, it is possible that the balance of demand and supply for government debt will shift from a factor holding down interest rates to a factor boosting interest rates,” Schmid said in prepared remarks at the Dallas Fed’s Energy and the Economy Conference on Nov. 13.

“Though the Fed is not a passive bystander and plays a role in setting short-term interest rates, it can’t perpetually deviate rates from market forces without risking its mandates for maximum employment and price stability. In this way, the Fed takes fiscal decisions as given and steers monetary policy in the appropriate direction to achieve its dual mandate.”

Fed officials of the policy-making Federal Open Market Committee are expected to cut interest rates by 25 basis points at next month’s meeting.

However, according to Quincy Krosby, the chief global strategist for LPL Financial, “there’s a lurking concern that future easing may be stymied by higher deficits coupled with potentially higher inflation.”

“Although the Fed isn’t going to respond to the possibility of higher tariffs and a package of tax cuts that could lead to an already unwieldy deficit, the Treasury market appears poised to be factoring in more than just the addition of favorable economic data into yields,” Krosby said in a note emailed to The Epoch Times.

The benchmark 10-year Treasury yield turned positive after a decline following the October consumer price index report. Since the Fed launched the new easing cycle, the 10-year yield has surged by about 80 basis points, to 4.45 percent.

The 20- and 30-year yields also advanced to 4.74 percent and 4.63 percent, respectively, in the middle of the trading week.