U.S. Budget Deficit Surges

By David Lawder

WASHINGTON (Reuters) – The U.S. budget deficit jumped nearly four-fold to $257 billion in October, according to the Treasury Department. This report marks the beginning of a new fiscal year, presenting a significant financial challenge for President-elect Donald Trump in January.

The October deficit saw a 287% increase from the $67 billion deficit recorded in October 2023, although calendar adjustments in benefit payments helped reduce this month's deficit significantly.

A Treasury official noted that in October 2023, the department received about $75 billion in tax payments that were deferred due to wildfires in California and other disasters that year. Without these adjustments, the October 2024 deficit would have reached about $47 billion, which is 22% higher than the previous year.

These budget figures stem from the first month of the 2025 fiscal year, following President Joe Biden's administration reporting a record $1.83 trillion deficit for fiscal 2024, the largest outside the COVID-19 period. Trump previously oversaw the largest-ever U.S. budget deficit of $3.1 trillion in fiscal 2020 due to extensive COVID relief measures and a collapse in economic activity.

On Tuesday, Trump appointed billionaire Elon Musk and former presidential candidate Vivek Ramaswamy to lead a new non-government initiative aimed at reducing federal spending and enhancing bureaucratic efficiency. Musk suggests that the federal budget could be slashed by at least $2 trillion, although the timeline remains unspecified.

Federal receipts for October fell 19% or $77 billion to $327 billion compared to October 2023, while outlays rose 24% or $114 billion to $584 billion. Increased spending was noted in Social Security, Medicare, and military expenditures. However, debt service costs dropped $7 billion (8%) to $82 billion, representing the first decline since August 2023, when interest rates began to rise.

Debt interest costs exceeded $1 trillion last year, becoming the government's second-largest expense after Social Security. The Treasury cited a $12 billion reduction in payments for inflation-protected securities due to lower consumer price indices as a factor in the reduced debt service costs.

Conversely, net interest on public debt reached $80 billion for the month, marking a $4 billion increase from the previous October, indicating a delayed impact of reduced rates on overall expenses.

Since Trump’s victory, the benchmark 10-year Treasury yield increased nearly 15 basis points, driven by market concerns regarding potential tax cuts from Trump adding trillions to federal deficits over the coming decade.