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. Debt servicing costs in the same period a year ago totaled $1.01 trillion. Net interest, or the Treasury's gross interest minus the interest it receives, 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.