The US ran a deficit of about $2 trillion in fiscal 2026 as federal debt passed $40 trillion

The Treasury reported on Friday a budget deficit of roughly $2 trillion for the fiscal year ended 30 September, 12% larger than the previous year’s⁵. The final shortfall came in at $1.99 trillion against $1.78 trillion a year earlier, making it the third-largest federal deficit in history⁶. The Philippine Star described it as the highest level since the pandemic¹⁰.

Comparisons vary with the baseline. Schiff Sovereign put the deficit $220 billion worse than the year before⁷, while the American Action Forum measured it against the official forecast: $140 billion, or 8 percent, higher than the $1.9 trillion the Congressional Budget Office had projected³. In February 2026 the CBO had projected a deficit of approximately $1.9 trillion⁴.

Federal spending climbed to $7.40 trillion from $7.01 trillion, according to TokenPost, while corporate tax receipts fell 16% to $381.4 billion⁸. The Philippine Star reported that military spending was among the drivers¹⁰.

Why it matters to investors

Reuters reported that federal debt has topped $40 trillion, more than 100% of GDP, with interest taking a higher share of output and yields rising¹. Axios charted the same pattern, with the deficit swelling while the cost of debt rises². IndexBox noted that a debt-to-GDP ratio near 100% was last reached when the Second World War was being financed¹⁶.

Interest costs are now larger than defence spending, the Seoul Economic Daily reported, in what it called the 25th straight year of deficits¹¹. An editorial in the Las Vegas Review-Journal put interest payments on the debt above $1.1 trillion a year¹⁵. Bank of America analysts estimated that a one percentage point rise in interest rates would add $95 billion to debt costs, and warned that “a vicious cycle threatens to take hold, with higher rates adding to the interest payments”¹⁴.

Treasury Secretary Scott Bessent has pointed to tariff refunds, the Iran war and high interest rates to explain the run-up in debt¹². That is the administration’s account of the causes¹³.

What to watch

The deficit is becoming a campaign issue. The Baltimore Sun reported that voters are noticing¹², and Reuters reported that voters feel rising yields ahead of the midterms¹.

For bond investors, the figures to watch are Treasury borrowing needs and the trajectory of interest costs relative to output, the measures Reuters and Axios both highlight^1,2.