The U.S. Treasury’s borrowing showed no signs of slowing as the U.S. headed deeper into fiscal year 2026, with the Congressional Budget Office (CBO) reporting that another $1 trillion was added to the federal deficit in the first five months of the year.
The monthly budget review from the CBO, updated to February 2026 and released yesterday, showed that the government is estimated to have borrowed $308 billion last month alone.
Of course, with more borrowing comes higher interest costs on the debt. Between October 2025 (when the 2026 fiscal year started) and February, the Treasury spent an additional $31 billion on net interest on public debt, compared to the prior year. As a result, in just five months, the Treasury forked out a total of $433 billion to service public debt, which is now nearing $38.9 trillion.
The CBO said that outlays for interest increased “because the debt was larger than it was in the first five months of fiscal year 2025 and because of higher long-term interest rates.” It added: “Declines in short-term interest rates partially mitigated the overall rise in interest payments.”
Despite the eye-watering sums, the deficit was actually an improvement on last year’s borrowing. For the same period (October 2024 to February 2025), the government needed to borrow an additional $142 billion compared to this year’s figure.
However, the improvement will do little to reassure budget hawks pushing for the U.S. to get its fiscal house in better order. Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB), said that interest payments on the debt are expected to exceed $1 trillion this year, and will surpass $2 trillion by 2036.
“This cannot be sustainable,” MacGuineas said. “Our fiscal problems will not solve themselves. We need policymakers to come together, agree to reduce deficits—a 3% deficit-to-GDP target would be a great start—and put our national debt on a downward sustainable path as a share of the economy.”
Economists aren’t necessarily worried by the total level of debt (in fact, government debt is a necessary foundation of global markets). Rather it’s the debt-to-GDP ratio, which measures a nation’s borrowing against its growth. If this tips too far out of balance, growth can be hampered by the excessive amount of cash needed for interest payments.
While the call for an annual 3% deficit-to-GDP target differs from the debt-to-GDP ratio, it still ties government borrowing to the economy’s output. In recent years, the deficit-to-GDP figure has sat between 5% and 6%.
The government’s balance sheet
Looking at the first five months of FY26, the deficit picture didn’t improve from FY25 because of a reduction in spending. Rather, the government generated greater revenues to offset its higher spending.
Collections of customs duties—such as revenues from tariffs—were more than four times the amount recorded in the first five months of last year, an increase of $109 billion. While some of the duties collected in 2025 will have to be returned to U.S. importers following a U.S. Supreme Court ruling on February 20, subsequent tariffs announced by the Oval Office mean the shortfall in revenues is relatively subdued.
Likewise, the coffers were further topped up by increases from individual income and payroll (social insurance) taxes, which together increased by $132 billion.
But outlays also grew significantly: In the first five months of the year, spending reached $3.1 trillion, $64 billion more than during the same period last year. Most notably, outlays for the three largest spending programs (social security, Medicare and Medicaid) rose by $104 billion.
The Department of Defense and Department of Veterans Affairs also saw upticks in spending, while the Department of Agriculture, Department of Homeland Security and Department of Education reduced outlays. The Environmental Protection Agency also reported decreased outlays of $20 billion, given the fact that in November and December 2024 the agency spent $20 billion under a clean energy grant program established by the 2022 reconciliation act.
