CBO: federal deficit hit $2 trillion in fiscal 2026, third-largest ever; net interest topped record $1.1 trillion
What happened
The nonpartisan Congressional Budget Office estimated Thursday that the federal budget deficit reached $2.0 trillion in fiscal year 2026, the third-largest annual deficit in American history after the two COVID-pandemic years. The gap widened $218 billion from FY2025 as outlays climbed $386 billion (6%) to $7.4 trillion while revenues rose only $169 billion (3%) to $5.4 trillion. Net interest payments on the national debt rose 11% to a record $1.1 trillion — the single biggest spending increase — while Social Security (+$86B), Medicare (+$77B) and Medicaid (+$55B) drove the rest of the rise. The deficit equaled 6.2% of GDP, up from 5.8% the prior year and well above the 50-year average of 3.8%.
Why it matters & what’s next are part of Pro, along with the audio summary.
Start your free 14-day trialWho’s affected
- Broad market / Treasuries: the deficit and debt-supply story is the backdrop to the week's bond selloff (10-year at 24-year highs), pressuring equity valuations and rate-sensitive sectors. Utilities and real estate (already sold off in Q3) face refinancing-rate headwinds. Defense contractors: military spending rose $48B (5%), a relative bright spot. Banks/financials could benefit from steeper long-end yields on net interest income but face duration risk on bond portfolios.