A Look at Recent Developments in the Federal Fiscal Balance

As part of their responsibilities, Federal Reserve economists track many aspects of the economy, such as labor markets, household consumption demand and firms’ investment in equipment and structures. The analysts also track federal fiscal policy because it affects a substantial part of the U.S. economy. For example, the federal government’s outlays excluding interest on the debt was $7 trillion in 2025. The federal government borrows to cover expenses in excess of tax revenues; this demand for funds influences the interest rates that households and businesses face, providing another reason for the Fed to track fiscal policy.

This post provides a few high-level observations about the federal budget, using U.S. Treasury data through December of last year. First, over the past year, the primary deficit (revenue minus outlays excluding interest cost) fell by about $350 billion on a 12-month trailing sum basis, as shown in the first figure below.

This deficit reduction was driven by two main factors. First, added receipts from tariffs implemented by President Donald Trump’s administration account for about $190 billion of the change. Before the new duties took effect, annual tariff receipts were about $80 billion, but through December they totaled about $270 billion. The next figure shows that increase.

Second, federal outlays excluding interest costs have flattened (and even declined in a few recent months), as shown by the blue line in the figure below. Using data through December 2024, 12-month summed outlays were $6.9 trillion. By December 2025, outlay growth had slowed somewhat, with a corresponding value of $7.0 trillion. Had outlays simply grown by 3%, then the deficit would have been about $110 billion larger. In contrast, as shown in the dashed green line in the figure below, net total receipts, excluding tariffs, have continued to rise steadily.

A few major developments, shaped by policy choices made in 2025, will likely have substantial impact this year. First, the path of the deficit, outlays and receipts over the next several years will be impacted by the ongoing implementation of the “One Big Beautiful Bill Act” passed last year; the legislation includes tax breaks and spending cuts. Also, the U.S. Supreme Court is deciding a case challenging the legality of many of the new tariffs.

Although the deficit has fallen somewhat over the past year, in a historical U.S. context, it remains near record levels for any period outside of a recession. The total federal deficit over the 12 months ended in December 2025 was $1.7 trillion. By contrast, the corresponding amount in the 12 months ended in December 2019 was about $1 trillion. Moreover, total federal debt held by the public is at an all-time high, equaling $30.8 trillion, according to data from December’s Monthly Treasury Statement.