The budget deficit swells, while the cost of debt rises

Data: Office of Management and Budget via Fred , U.S. Treasury; Note: 2026 GDP estimated using extrapolated Q3 growth via CFRB; Chart: Emily Peck/Axios The U.S. budget deficit is ballooning, reaching $2 trillion this fiscal year, according to the latest figures. Why it matters: That's the largest deficit since 2021, when the U.S. was climbing out of the pandemic recession. The deficit is being driven in part by the cost of servicing the nation's enormous debt at a time when interest rates are rising due, in part, to the inflationary impact of the Iran war. By the numbers: The federal government paid out $1.052 trillion in net interest on its outstanding debt — all those Treasury notes and bonds we keep writing about — for the 2026 fiscal year, which ended Sept. 30, according to the Treasury data. That's more than what was spent on defense, and was the country's third-biggest outlay after Social Security ($1.67 trillion) and Medicare ($1.07 trillion). Stunning stat: Federal net interest