The U.S. federal government’s deficit has ballooned to $1.27 trillion in the fiscal year ending in June, driven largely by surging interest payments on the nation’s mounting debt, the Treasury Department recently revealed.

Despite record-high receipts of $466 billion in June, the government still ran a deficit of $66 billion for the month, as Bloomberg reported. While this marked a slight improvement over the same period last year, it underscored the growing strain on public finances.

Adjusting for calendar differences, the month’s shortfall was just $5 billion smaller than in June of last year, while the year-to-date deficit fell slightly as well. The Federal Reserve’s aggressive campaign to tame inflation through interest rate hikes has significantly increased the cost of servicing the national debt, meaning interest payments alone reached a staggering $140 billion in June and totaled $868 billion for the first nine months of the fiscal year, a 33%jump from the previous year.

The average interest rate on government debt climbed to 3.3 percent in June, its highest level since 2008.

While tax revenue exceeded last year’s figures, Treasury officials cautioned that much of this growth was attributable to tax filing extensions granted to disaster-stricken areas, primarily in California.

The $1.27 trillion deficit was revealed at a time in which the Federal Reserve posted a net negative income of $114.3 billion for 2023 – a record loss associated with the central bank’s interest rate management.

The loss came after the Federal Reserve managed a $58.8 billion net income in 2022,whie it sits on over $1 trillion of unrealized losses from holding underwater securities it’s looking to hold onto until maturity.

Featured image via Unsplash.