(Bloomberg) -- The US federal budget deficit surged in August with one month to go until the end of the fiscal year as higher interest costs continued to weigh on the overall balance.
The $1.9 trillion gap for the 11 months through August was up 24% from the same period last year, Treasury Department data released Thursday showed. For the month of August alone, the deficit was $380 billion, compared with a surplus in August 2023 when adjusting for calendar differences. Much of the monthly variance was due to accounting for a rollback of student-debt forgiveness.
The interest burden on outstanding US debt remains a major drag on the budget. Interest costs in the first 11 months of the fiscal year totaled $1.05 trillion, up 30% from 2023. Interest costs have never exceeded $1 trillion a year before now, though Treasury officials noted that as a share of gross domestic product, the ratio was higher in the early 1990s.
The Federal Reserve’s aggressive interest-rate hiking campaign, aimed at quelling inflation, has made debt more expensive to issue for the federal government. The weighted average interest rate on outstanding US interest-bearing government debt was 3.35% at the end of August, up 43 basis points from the same month the year before and the highest since 2009.
Last year’s decision by the Supreme Court to nix the Biden administration’s student-debt forgiveness plan resulted in an accounting adjustment that meant a $319 billion widening in the year-to-date budget deficit, Treasury officials said Thursday.
Widening 7%
On the flip side, 2024 tax revenues have been inflated by an influx of payments that were deferred in 2023 due to natural disasters that struck in areas that included most of California. The deferred taxes amount to about $135 billion for this year, Treasury officials said.
Adjusting for both the student debt and the deferred tax accounting, the deficit would be about 7% wider for the first 11 months of the fiscal year compared with last year, the officials said.
(Updates with further details in final three paragraphs.)
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