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US Deficit Shrinks: Is It A Real Fix?
15 Jan
Summary
- Deficit down $109 billion, a 15% decrease year-over-year.
- Tariff revenues surged to $90 billion from $20 billion.
- Spending remains elevated at 23% of GDP, above historical norms.
The United States has witnessed a remarkable reduction in its budget deficit in recent months, a welcome shift from the grim fiscal outlook of late 2025. For the initial three months of the current fiscal year, covering October through December, the deficit decreased by $109 billion, marking a 15% improvement over the previous year.
This turnaround is largely attributed to a substantial increase in tariff revenues, known as customs receipts, which surged to $90 billion from just $20 billion a year prior. While the market had anticipated some positive movement, this sharp decline offers a significant reprieve, though concerns linger about its long-term durability.
Despite the deficit's improvement, core spending remains stubbornly high, holding steady at approximately 23% of GDP, exceeding the historical average of 20%. Analysts emphasize that without a reduction in spending, achieving a sustained decrease in the deficit from its current 6% to a target of 3% of GDP remains a significant challenge. This fiscal situation continues to influence interest rates, complicating efforts to lower mortgage rates.
