After a rare super high annual budget deficit over the past 200 years, the U.S. federal government has once again raised the red flag on fiscal deficits.
On February 12, Eastern Time, the U.S. Department of the Treasury released data showing that from October 2024 to January 2025, the first four months of fiscal year 2025, the U.S. federal government's budget deficit reached $84 billion, setting a record for the highest deficit in the first four months of any fiscal year. This figure exceeded the deficit levels during the peak of fiscal spending after the outbreak of the COVID-19 pandemic, expanding by $308 billion or 58% compared to the same period in fiscal year 2024.
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Officials from the Treasury stated that the year-on-year expansion of the deficit in the first four months was partly due to the tax revenue for fiscal year 2024 being inflated by approximately $85 billion in deferred tax payments from the previous fiscal year.
Treasury data shows that both government revenue and expenditure in the first four months of fiscal year 2025 set records for the same period in history. Specifically, government revenue was $1.596 trillion, an increase of $11 billion or 1% year-on-year, while government expenditure was $2.436 trillion, an increase of $319 billion or 15% year-on-year.
The following chart from the Treasury illustrates that the sharp increase in the deficit over the past four months was primarily due to increased spending on healthcare, social security programs, military expenditures, and debt interest payments.
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In the first four months of fiscal year 2025, the federal government's spending on the Social Security program, which supports the elderly and disabled workers, was $502 billion, making it the largest expenditure item and accounting for 20.6% of total spending. The federal government's largest health insurance program, Medicare, had expenditures of $368 billion, accounting for 15.1% of total spending, while defense spending was $334 billion, accounting for 4.1% of total spending.
Since March 2022, the Federal Reserve has cumulatively raised interest rates by 525 basis points until July of last year. The Fed's continued rate hikes and maintenance of high interest rates have placed an even heavier debt repayment burden on the already indebted U.S. government. Wall Street Insight has previously mentioned that the growing interest on government debt is a major driver of the expanding deficit.
In the first four months of fiscal year 2025, the federal government's debt interest costs totaled $392 billion, equivalent to 16.1% of total government spending. The net interest expenditure for the four months was $322 billion, accounting for 13.2% of total spending.
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In the past four months, only in January of this year, the budget deficit reached as high as $129 billion, making it the second highest January deficit level in history since the outbreak of the COVID-19 pandemic in January 2021, approximately 5.9 times the $22 billion deficit in January of last year. The U.S. Department of the Treasury stated that the year-on-year surge in the January deficit was due to the timing changes in welfare program payments, and the growth rate of expenditures on Social Security, Medicare, debt interest, and other items outpacing revenue.
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In January, U.S. federal government spending was $642 billion, close to the monthly record high, a year-on-year increase of 29%, or an increase of $143 billion. However, government revenue, including taxes, only grew by 7.5% year-on-year, an increase of $36 billion, reaching $513 billion.
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As of January, the total interest on federal government debt over the past 12 months reached a record $1.167 trillion, with $83.6 billion in interest expenses in January alone.
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When asked about the budget-saving efforts led by the government efficiency department (DOGE) under Elon Musk during the Trump administration, Treasury officials stated that they were unaware of any plans to announce how much savings DOGE's work could bring in the future.
From the deficit situation in the past four months, it is evident that the new Treasury Secretary, Janet Yellen, faces significant challenges. In the fiscal year 2024, the federal government's budget deficit as a percentage of GDP has risen to 6.4%, and her goal is to reduce this ratio to 3%. Moreover, fiscal hawks within the Republican Party may be more determined, as they would demand significant spending cuts if Trump seeks to extend the large-scale tax cuts enacted in 2017 that are set to expire at the end of this year

As of January this year, in the first four months of the fiscal year 2025, the U.S. federal government's budget deficit expanded by 58% year-on-year, with both government revenue and expenditure reaching record highs for the same period, increasing by 1% and 15% respectively. In the first four months, the government's interest costs were $392 billion, accounting for 16% of total expenditures; the January budget deficit was $129 billion, the second highest level after January during the COVID-19 pandemic. Government spending in January increased by 29% year-on-year, while revenue grew by 7.5%

- The U.S. federal government reported a record budget deficit of $84 billion for the first four months of fiscal year 2025, marking a 58% increase compared to the same period in fiscal year 2024.  
- This deficit is attributed to rising expenditures in social security, healthcare, military spending, and interest on debt, with total government spending reaching $2.436 trillion, a 15% increase year-over-year.  
- The new Treasury Secretary faces significant challenges, aiming to reduce the deficit-to-GDP ratio from 6.4% to 3%, amid pressures from fiscal conservatives for spending cuts.

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The U.S. government deficit raises red flags again! The deficit in the first four months of the fiscal year reached a record $84 billion, surpassing the peak period of the pandemic