© Bloomberg. Visitors in the Rotunda of the U.S. Capitol in Washington, D.C., U.S., on Wednesday, March 30, 2022. Legislation to revoke Russia’s regular trade status with the U.S. remains stalled as Democrats scramble to reach a deal with GOP Senators.
(Bloomberg) — The US federal government’s budget deficit widened in February by $262 billion, bringing the gap for the first five months of the fiscal year to $723 billion.
The amount the government pays out in interest on outstanding debt was once again a key driver of the deficit, according to monthly budget figures released Friday by the Treasury Department. The interest bill was $46 billion for February and some $307 billion in the fiscal year to-date — amounting to about a 29% jump from last year.
After adjusting for calendar effects, the federal deficit for the fiscal year so far has widened by 62% over the year before. That deterioration is set to intensify a partisan battle over how to address long-term budget challenges, with President Joe Biden proposing a raft of tax increases and Republican lawmakers insisting on spending cuts.
Federal Reserve interest-rate hikes to combat inflation have had the incidental impact of driving up US borrowing costs — a dynamic that Chair Jerome Powell was asked about in congressional hearings this week. Powell highlighted that the Treasury’s interest costs are not at all a consideration for monetary policy, given that Congress has charged the Fed instead with achieving maximum employment and price stability.
With the Fed now paying out more in interest to banks that park reserves with it, the central bank is no longer remitting profits to the Treasury. The Treasury’s data showed that earnings received from the Fed fell to zero in February, compared with $11 billion in February 2022.
Aside from adding to the nation’s total debt, rising deficits also risk shrinking the time that Congress has to resolve a partisan standoff over boosting the federal debt limit. Republicans have demanded promises of future spending limits in return for lifting the ceiling.
Treasury Secretary Janet Yellen has already deployed special accounting maneuvers to extend the time before her department will run out of cash, after the federal government hit the statutory $31.4 trillion debt ceiling last month. In mid-January, she indicated those maneuvers would last at least until early June.
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