U.S. budget deficit surged in July to highest level since March 2021

The U.S. budget deficit soared to its highest monthly level in more than five years amid a surge in Medicare costs and as interest on the federal debt continued to weigh on the nation's fiscal picture, the Treasury Department reported Wednesday.

In addition to the big single-month jump, the collective red ink across the first 10 months of the government's fiscal year rose to nearly $1.8 trillion and surpassed the same period in 2025.

The July shortfall totaled $432.3 billion, up some 48% from the same period a year ago and the largest monthly deficit since March 2021.

Medicare expenses for the month totaled $174 billion, up from $103 billion in June and now at $955 billion for the full year. It was the single largest expenditure in July, well ahead of the $141 billion spent on Social Security and $104 billion in net interest on the national debt.

Tariff refunds also hit the budget, costing $33 billion as the administration continues to provide rebates for levies that the Supreme Court ruled illegal. Additionally, the budget took a $99 billion hit because the first of the month was a nonbusiness day, accelerating various benefits outlays as well as Supplemental Security Income and Medicare payments.

Debt financing for the full year is behind only Social Security and Medicare as a proportion of government expenses. For the fiscal year to date, the U.S. has paid out $1.17 trillion on the $39.9 trillion national debt, of which $32.1 trillion is held by the public. The level is up about $157 billion from the same period a year ago. Net interest has totaled $931 billion.

President Donald Trump for years had been pressing the Federal Reserve to lower benchmark interest rates as a way to reduce debt costs. He has held off on criticizing the central bank since his nominee, Kevin Warsh, took over as chairman in May.

Until recently, markets had been looking for the Fed to raise rates to control inflation that has been running above the central bank's 2% target for more than five years. However, recent benign inflation data and a soft payroll reports have tempered those expectations, though futures traders aren't pricing in any chance of a rate cut for the next five years.