Key Takeaways
- • The Congressional Budget Office reported a October 2026 federal deficit of $409 billion, more than $100 billion per week and $125 billion larger than the shortfall recorded in October 2025.
- • Revenues fell $36 billion and outlays rose $89 billion year over year, with the CBO attributing much of the gap to payments shifted into October because November 1 fell on a weekend in 2025 and 2026.
- • The FY2026 deficit totaled $1.9 trillion, or 6.2% of GDP, up from 5.8% a year earlier and well above the 50-year average of 3.8%, with $1.14 trillion spent on interest on the public debt.
- • Treasury Secretary Scott Bessent's summer "Treasury twist" debt reshuffling drew criticism from fiscal hawks, with JPMorgan's James Sullivan calling it "paying your mortgage with your credit card."
Summary
The Congressional Budget Office reported that the federal government incurred a deficit of $409 billion in October 2026, the first month of fiscal year 2027. According to the CBO, the figure exceeded the prior October's shortfall by $125 billion. Revenues were $36 billion lower and outlays were $89 billion higher than in the same month a year earlier. The agency attributed much of the increase to the timing of certain federal payments that would normally have been made on November 1, which fell on a weekend in 2025 and 2026 and were therefore pushed into October.
The October figures follow a summer of debt management actions by the U.S. Treasury under Secretary Scott Bessent. Bessent described the strategy as a "Treasury twist," in which longer-dated Treasuries are repurchased using proceeds from shorter-term issuance. The Treasury has not confirmed the approach verbatim, though Bessent has indicated it involved buying back more expensive long-term debt in place of cheaper short-term debt. Fiscal hawks questioned whether the measures meaningfully improved the macroeconomic picture. JPMorgan's co-head of global fundamental research, James Sullivan, said the move was akin to "paying your mortgage with your credit card," adding that it could work for a while before the mismatch becomes more obvious. Markets were not impressed initially, though tighter Federal Reserve rhetoric on inflation and a recent AI-driven sell-off have since pushed longer-dated yields lower and smoothed volatility.
While the reshuffling has made government borrowing relatively cheaper over the long term, the CBO's annual review points to a deteriorating fiscal trajectory. The deficit for fiscal 2026 reached $1.9 trillion, or 6.2% of GDP, compared with 5.8% a year earlier. That ratio exceeds the 50-year average of 3.8% and has been matched or exceeded only eight times since 1946, in 2009 through 2012 and in 2020, 2021, 2023 and 2024. Net interest on the public debt totaled $1.14 trillion for the year.
Government receipts rose to $5.4 trillion in fiscal 2026, up $169 billion, driven largely by higher individual income and payroll tax collections. Outlays, however, increased by $217 billion, with most of the growth coming from Social Security, Medicare and Medicaid.
The October figures follow a summer of debt management actions by the U.S. Treasury under Secretary Scott Bessent. Bessent described the strategy as a "Treasury twist," in which longer-dated Treasuries are repurchased using proceeds from shorter-term issuance. The Treasury has not confirmed the approach verbatim, though Bessent has indicated it involved buying back more expensive long-term debt in place of cheaper short-term debt. Fiscal hawks questioned whether the measures meaningfully improved the macroeconomic picture. JPMorgan's co-head of global fundamental research, James Sullivan, said the move was akin to "paying your mortgage with your credit card," adding that it could work for a while before the mismatch becomes more obvious. Markets were not impressed initially, though tighter Federal Reserve rhetoric on inflation and a recent AI-driven sell-off have since pushed longer-dated yields lower and smoothed volatility.
While the reshuffling has made government borrowing relatively cheaper over the long term, the CBO's annual review points to a deteriorating fiscal trajectory. The deficit for fiscal 2026 reached $1.9 trillion, or 6.2% of GDP, compared with 5.8% a year earlier. That ratio exceeds the 50-year average of 3.8% and has been matched or exceeded only eight times since 1946, in 2009 through 2012 and in 2020, 2021, 2023 and 2024. Net interest on the public debt totaled $1.14 trillion for the year.
Government receipts rose to $5.4 trillion in fiscal 2026, up $169 billion, driven largely by higher individual income and payroll tax collections. Outlays, however, increased by $217 billion, with most of the growth coming from Social Security, Medicare and Medicaid.
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