The US budget deficit in July rose to the highest monthly level in over five years due to increased spending on Medicare and high interest payments on the federal debt, the Treasury Department reported on Wednesday.
The July deficit was $432.3 billion, about 48% more than the same month last year, and the largest monthly deficit since March 2021. For the first 10 months of the fiscal year, the cumulative federal budget deficit reached nearly $1.8 trillion, exceeding the figure for the same period in 2025.
Key expenses and other factors
Spending on Medicare in July was $174 billion, compared to $103 billion in June. For the current fiscal year, it reached $955 billion. In July, this was the largest item of federal spending, surpassing $141 billion in spending on Social Security and $104 billion in net interest payments on the national debt.
An additional burden on the budget was created by customs duty refunds amounting to $33 billion. The administration continues to return funds for duties that the Supreme Court ruled illegal. In addition, the budget was affected by $99 billion because the first day of the month was a non-working day. This led to the early implementation of a number of social payments, including under the Supplemental Security and Medicare programs.
National debt and Fed policy
Debt servicing costs for the current fiscal year are only surpassed by Social Security and Medicare as a share of total government spending. During this period, the US spent $1.17 trillion on servicing the national debt, which stands at $39.9 trillion. Of this amount, $32.1 trillion is debt to the public and investors. Total net interest payments amounted to $931 billion, about $157 billion more than the same period last year.
President Donald Trump has for years called on the Federal Reserve (Fed) to lower base interest rates to reduce debt servicing costs. Since his nominee, Kevin Warsh, took over as Fed chairman in May, Trump has refrained from criticizing the central bank.
Until recently, markets expected the Fed to raise rates to curb inflation, which has exceeded the central bank’s target of 2% for more than five years. However, recent favorable inflation data and weak employment figures have weakened these expectations. At the same time, futures traders are currently not expecting a rate cut over the next five years.
Source: CNBC
