The U.S. budget deficit jumped to its highest monthly level in more than five years in July, according to Treasury Department data released Wednesday, as Medicare costs surged and interest payments on the national debt continued to strain the fiscal picture.
The July shortfall totaled $432.3 billion, up about 48% from the same month a year earlier and the largest monthly deficit since March 2021, CNBC reported.
For the first 10 months of the government’s fiscal year, the cumulative deficit rose to nearly $1.8 trillion, surpassing the same period in 2025.
Medicare and debt interest weigh heavily
Medicare was the single largest expenditure in July, totaling $174 billion—up sharply from $103 billion in June—and reaching $955 billion for the fiscal year to date. That far outpaced the $141 billion spent on Social Security and $104 billion in net interest on the national debt during the month.
The budget also took a $99 billion hit because the first of the month fell on a nonbusiness day, which accelerated various benefit payments, including Supplemental Security Income and Medicare outlays. Tariff refunds added another $33 billion in costs as the administration continues to issue rebates for levies that the Supreme Court ruled illegal.
Debt financing climbs
Debt financing for the full fiscal year is now behind only Social Security and Medicare as a share of government expenses. For the year to date, the U.S. has paid out $1.17 trillion in interest on the $39.9 trillion national debt, of which $32.1 trillion is held by the public. That figure is up about $157 billion from the same period a year ago, with net interest totaling $931 billion.
Fed policy in focus
President Donald Trump had long pressed the Federal Reserve to lower benchmark interest rates to reduce debt costs, but he has refrained from criticizing the central bank since his nominee, Kevin Warsh, took over as chairman in May.
Markets had recently been expecting the Fed to raise rates to combat inflation that has run above the central bank’s 2% target for more than five years. However, softer inflation data and a weak payroll report have tempered those expectations, though futures traders are not pricing in any chance of a rate cut over the next five years.
Source: www.cnbc.com — https://www.cnbc.com/2026/08/12/us-budget-deficit-surged-in-july-to-highest-level-since-march-2021.html
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