As interest rates continue to rise, the federal government is spending more to service the national debt, the Treasury Department said Monday. According to the latest monthly Treasury statement, the U.S. made $103 billion in gross interest payments on the debt in the first two months of the 2023 fiscal year, which began in October – an 87% increase from the $55 billion it spent in the same period a year earlier.
“It’s a taste of what lies ahead after the Federal Reserve hiked its benchmark rate by almost 4 percentage points this year and is expected to lift it close to 5% in 2023,” says Bloomberg’s Christopher Condon.
The same Treasury report shows that the monthly budget deficit in November was $249 billion – a 30% increase from the $191 billion budget gap a year before, and a record for the month. Receipts fell by $29 billion to $252 billion relative to a year ago, and outlays rose by $28 billion to $501 billion. Adjusting for calendar-related factors, such as the timing of holidays and weekends, the deficit would have been just 20% larger.
The decrease in revenues was driven in part by a big increase in tax refunds paid to individuals as the IRS continues to work its way through a backlog of tax returns. Earnings paid to the Treasury by the Federal Reserve also saw a sharp decline, falling by 98%.
Higher outlays were related to an 18% increase in Medicare costs relative to a year ago, and a 94% increase in education costs associated with changes in student loan forgiveness programs.
The bottom line: The huge reductions in the budget deficit seen earlier in 2022, driven by the expiration of temporary aid programs related to the Covid-19 pandemic, are unlikely to be repeated. At the same time, higher interest rates will mean higher payments on the existing debt, putting upward pressure on the budget deficit in the months ahead.