CBO puts the fiscal 2026 federal deficit at $2 trillion

The federal budget deficit totaled $2.0 trillion in fiscal year 2026, $218 billion more than the deficit recorded in fiscal year 2025, the Congressional Budget Office estimated in its monthly budget review^1,7. The Wall Street Journal described the result as just under $2 trillion for the fiscal year that ended September 30¹⁰. The outcome is worse than the office itself expected in February, when it projected a deficit of $1.9 trillion for the year⁴.

The federal government spent about $7.4 trillion over the year, a 6 percent increase, while revenues rose 3 percent to about $5.4 trillion⁵. Corporate income tax receipts declined by $70 billion, or 16 percent, a fall the American Action Forum attributed to the One Big Beautiful Bill⁹. At the end of May, roughly two-thirds of the way through the fiscal year, the cumulative deficit stood at $1.2 trillion, meaning a large share of the gap opened in the closing months⁶.

Why it matters to investors

Published alongside the monthly review was a second CBO paper setting out the budgetary outcomes under two alternative scenarios in which interest rates are higher than those underlying the office’s February 2026 baseline². Reading those scenarios, the Committee for a Responsible Federal Budget said rising rates could take federal debt as high as 133 percent of GDP, with deficits reaching as much as 8.8 percent of GDP by 2036³.

Phillip Swagel, the director of the Congressional Budget Office, said the United States would need 5 percent to 6 percent GDP growth to stabilize the debt through growth alone⁸. Newsmax framed the combination of a widening deficit and higher rates as raising affordability concerns for households⁵.

What to watch

The immediate question for bond investors is the size of the borrowing program that follows from a $2.0 trillion shortfall, and whether the deficit keeps running ahead of the CBO’s own baseline as it did this year^1,4. The gap between the February projection of $1.9 trillion and the $2.0 trillion outcome is the measure of how quickly the baseline is being overtaken^4,7.

The second measure to follow is the interest line itself. The CBO’s higher-rate scenarios are explicitly built off a February baseline that current market yields have moved beyond, which is what makes the 133 percent debt path and the 8.8 percent deficit path live rather than hypothetical^2,3. Corporate receipts are the third variable, after a $70 billion decline tied to the tax law⁹.