US FISCAL
The federal budget deficit came in at $128.6B in January, well above the $94.8B expected and $21.9B in January 2024 (Dec 2024 was $86.7B) This was the biggest January deficit since 2021.
- The fiscal accounts have clearly deteriorated in nominal terms vs the prior year: the deficit has totaled $840B in the current fiscal year to date, compared with $532B in the prior year. This is the biggest cumulative deficit yet recorded in the first 4 months of the fiscal year in nominal terms (see chart).
- On a 12-month basis, the fiscal deficit hit $2.14T, the highest over such a period since July 2023 ($2.326T).
- One culprit: interest costs on the public debt have increased by $45B in this fiscal year so far, from $357B in the prior year, and at roughly 3.1% of GDP on an annual basis could exceed early 1990s proportions (in nominal terms, debt payments are due to set a clearer record).
- But the deepening deficit is more broad-based: for the year to date, receipts are up 1% Y/Y to $1.60T but spending is up 15% to $2.44T.
- The growth of the economy has helped keep the deficit relatively contained as a percentage of GDP (around 7% on a 12-month rolling basis in January).
- But this is still an extraordinarily elevated figure that comes amid the Congressional process to pass tax cuts. The House's budget resolution just out includes $4.5 trillion for the House Way and Means Committee to write up Trump's tax agenda, including the extension of 2017 tax cuts and potentially new reforms to cover campaign pledges like exempting tipped earnings from tax, while reducing mandatory spending by $2T and a $4T increase to the debt limit.
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