The cost of servicing US government debt jumped by 25% in the first nine months of the fiscal year, reaching $652 billion and contributing to a major widening in the budget deficit.
(Bloomberg) — The cost of servicing US government debt jumped by 25% in the first nine months of the fiscal year, reaching $652 billion and contributing to a major widening in the budget deficit.
For the nine months through June, the federal deficit hit $1.39 trillion, up some 170% from the same period the year before, according to Treasury Department data released on Thursday.
The widening shortfall may play into Republican lawmakers’ pressure to curtail federal spending. While the GOP, which controls the House, did a deal with the Biden administration to suspend the debt limit earlier this summer, a fresh fight looms over appropriations for the 2024 fiscal year, which starts Oct. 1.
Higher interest rates have been a key driver of the deficit, with the Federal Reserve boosting its benchmark rate by 5 percentage points since it began hiking in March last year. Five-year Treasury yields are now about 3.96%, versus 1.35% at the start of last year. As lower-yielding securities mature, the Treasury faces steady increases in the rates it pays on outstanding debt.
The weighted average interest for total outstanding debt by the end of June was 2.76%, the highest level since February 2012, according to the Treasury. That’s up from 1.80% a year before, the department’s data show.
Revenue Hit
Still, Treasury Secretary Janet Yellen has played down concerns about higher rates. She has instead flagged that the ratio of interest payments to GDP, after adjustment for inflation, remains historically low.
Read More: Yellen’s Debt Yardstick Belies American Angst Over US Borrowing
Another key reason for the widening deficit this year has been a weakening in Treasury revenues, thanks especially to a reduced capital gains tax take. Last year’s slumps in stocks, bonds and other assets meant lower receipts for the government.
Inflation has also boosted a number of government spending items.
(Updates historical comparison in paragraph before ‘Revenues Hit’ subheadline.)
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