US July Budget Deficit Hits Record for the Period; Interest Expense Surpasses $1 Trillion This Fiscal Year

Accelerating expansion of US federal expenditure combined with declining revenue has led to a continuous deterioration in the US fiscal situation, with debt Interest Expense accumulating to over $1 trillion in the current fiscal year.

Data released by the US Department of the Treasury on Wednesday showed that the July Budget Deficit reached $432 billion, the highest on record for this period, primarily driven by a sharp rise in Medicare spending and persistently rising debt costs on public debt.

For the first 10 months of fiscal year 2026, the cumulative Budget Deficit has reached $1.8 trillion. After adjusting for calendar factors, the deficit scale expanded by 5% compared to the same period in fiscal year 2025, highlighting that government borrowing needs continue to rise.

Meanwhile, following the Supreme Court's ruling that most of Trump's tariff hikes were invalid, the ongoing process of tariff refunds has also dragged on fiscal revenue, further intensifying deficit pressure.

Surge in Medicare Spending Dominates Monthly Deficit

July deficit data was significantly affected by abnormal fluctuations in Medicare spending.

Data shows that spending in this category surged by $76 billion year-on-year in the month, but a large portion of this may stem from calendar differences. After excluding this factor, the actual year-on-year increase in Medicare spending was $11 billion.

After adjustment, total federal spending in July increased by $37 billion compared to the same period in 2025, while revenue decreased by $12 billion. Pressure on both revenue and expenditure sides jointly drove the expansion of the monthly deficit.

From the perspective of the fiscal year as a whole, after adjusting for calendar factors, the deficit scale for the first 10 months of fiscal year 2026 expanded by 5% compared to the same period in fiscal year 2025, with expenditure growing by 4% and revenue growing by 3%.

High Debt Interest Costs; Exceeds $1 Trillion This Fiscal Year

Interest Expense on public debt continues to be one of the core pressures driving up the deficit.

Interest Expense in July increased by $26 billion year-on-year. Cumulative Interest Expense for the first 10 months of fiscal year 2026 has reached $1.17 trillion, a 15% year-on-year increase, partly due to rising US Treasury yields.

Wall Street Insights mentioned that the winning yield at the auction of US 10-year Treasury notes reached 4.683%, the highest since 2007, with the 30-year auction on Thursday expected to set the highest financing rate in 25 years. The trend of investors demanding higher returns to absorb government financing needs is becoming increasingly evident.

The upward trend in debt financing costs is difficult to reverse in the short term, and the squeezing effect of Interest Expense on public finances will continue.

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