Economy

WASHINGTON (Reuters) -The U.S. budget deficit grew to $1.833 trillion for fiscal 2024, the highest outside of the COVID era, as interest on the federal debt exceeded $1 trillion for the first time and spending grew for the Social Security retirement program, health care and the military, the Treasury Department said on Friday.The deficit for the year ended Sept. 30 was up 8%, or $138 billion, from the $1.695 trillion recorded in fiscal 2023. It was the third-largest federal deficit in U.S. history, after the pandemic relief-driven deficits of $3.132 trillion in fiscal 2020 and $2.772 trillion in fiscal 2021.The fiscal 2023 deficit had been reduced by the reversal of $330 billion of costs associated with President Joe Biden’s student loan program after it was struck down by the U.S. Supreme Court. It would have topped $2 trillion without this anomaly.The sizable fiscal 2024 budget gap of 6.4% of gross domestic product, up from 6.2% a year earlier, could pose problems for Vice President Kamala Harris’ arguments ahead of the Nov. 5 presidential election that she would be a better fiscal steward than Republican opponent Donald Trump.A fiscal think-tank, the Committee for a Responsible Federal Budget, has estimated that Trump’s plans would pile up $7.5 trillion in new debt, more than twice the $3.5 trillion envisaged from Harris’ proposals.White House budget director Shalanda Young emphasized the strong growth in the U.S. economy and the Biden administration’s investments in clean energy, infrastructure and advanced manufacturing.”This Administration has done this while maintaining a commitment to fiscal responsibility by ensuring the wealthiest among us and large corporations pay their fair share and cutting wasteful spending on special interests,” Young said in a statement, referring to plans by Biden and Harris to raise taxes on these groups.U.S. receipts for the 2024 fiscal year hit a record $4.919 trillion, up 11%, or $479 billion, from a year earlier, as individual non-withheld and corporate tax collections grew. Fiscal 2024 outlays rose 10%, or $617 billion, to $6.752 trillion.INTEREST COSTSThe biggest driver of the year’s deficit was a 29% increase in interest costs for Treasury debt to $1.133 trillion due to a combination of higher interest rates and more debt to finance. The total exceeded outlays for the Medicare healthcare program for seniors and for defense spending.But a senior Treasury official said the interest costs as a share of GDP reached 3.93%, below the 1991 record of 4.69% but the highest percentage since 4.01% in December 1998.The weighted average interest rate on federal debt was 3.32% in September, up 35 basis points from a year earlier, but down from 3.35% from August, marking the first monthly decline since January 2022.Other drivers of increased outlays for the fiscal year included Social Security, up 7% to $1.520 trillion, Medicare, up 4% to $1.050 trillion, and military programs, up 6% to $826 billion.For September, the government reported a $64 billion surplus, compared to a $171 billion deficit in September 2023, but the improvement was largely due to calendar adjustments for benefit payments. Without these, there would have been a $16 billion deficit in September 2024.Reported receipts were a record for September at $528 billion, up 13% from a year earlier, while outlays were $463 billion, down 27% largely due to the calendar adjustments. More

“We think the market wobbles over November and December Fed rate cuts are overdone. November looks rock solid to us at present, and December looks strongly odds-on though necessarily not watertight with more time to accumulate data,” Evercore ISI analysts said in a Friday note.The Federal Reserve will likely cut rates in both November and December, analysts at Evercore ISI said in a Friday note, bringing the federal funds rate down to a range of 4.25% to 4.5%.The call for a November and December rate cut comes even as recent strong economic data, including retail sales and unemployment claims,  led some market participants to question whether the Fed is likely to pause at upcoming meetings.But Evercore ISI believes that the Fed is unlikely to swayed by the recent data as the central bank’s primary focus is on moving rates back to a “more neutral setting to maintain a robust labor market as inflation returns to target.”The current level of rates, meanwhile, remain at levels that continue to curb growth and inflation. Real rates remain significantly elevated compared with “mainstream views of what a neutral setting might look like even in the short run,” the analysts said.”So we think there is a strong bias to move steadily to cut twice more at successive meetings down to 4.25 to 4.5 per cent after December before considering slowing down,” they added.Looking ahead to 2025, Evercore ISI revised its growth forecast upward amid expectations for a boost from the carryover effect of increased fiscal resources and an expected rebound in credit growth.While the first leg of rate cuts this year is seemingly on a more certain footing, the second leg of rate cuts will be executed with more caution. “[T]he more nuanced judgments will come in the second leg from 4-4.5 per cent to 3-3.5 per cent, when the Fed will learn more about neutral and will have to factor in how to remain dynamically well positioned including with respect to Trump policy shocks if Trump wins,” the analysts said. More

The Biden administration rang up a budget topping $1.8 trillion in fiscal 2024, up more than 8% from the previous year and the third highest on record.
Interest expense for the year totaled $1.16 trillion, the first time that figure has topped the trillion-dollar level.

The U.S. Treasury building in Washington, D.C., on Aug. 15, 2023.
Nathan Howard | Bloomberg | Getty Images

The Biden administration rang up a budget deficit topping $1.8 trillion in fiscal 2024, up more than 8% from the previous year and the third highest on record, the Treasury Department said Friday.
Even with a modest surplus in September, the shortfall totaled $1.833 trillion, $138 billion higher than a year ago. The only years the U.S. has seen a great deficit were 2020 and 2021 when the government poured trillions into spending associated with the Covid-19 pandemic.

The deficit came despite record receipts of $4.9 trillion, which fell well short of outlays of $6.75 trillion.
Government debt has swelled to $35.7 trillion, an increase of $2.3 trillion from the end of fiscal 2023.
One aggravating factor for the debt and deficit picture has been high interest rates from the Federal Reserve’s series of hikes to fight inflation.
Interest expense for the year totaled $1.16 trillion, the first time that figure has topped the trillion-dollar level. Net of interest earned on the government’s investments, the total was a record $882 billion, the third-largest outlay in the budget, outstripping all other items except Social Security and health care.
The average interest rate on all the government debt was 3.32% for 2024, up from 2.97% the previous year, a Treasury official said.

The government did run a surplus in September of $64.3 billion, the product in part of calendar effects that pushed benefit payments into August, which saw a $380 billion deficit, the biggest month of the year.
As a share of the total U.S. economy, the deficit is running above 6%, unusual historically during an expansion and well above the 3.7% historical average over the past 50 years, according to the Congressional Budget Office.
The CBO expects deficits to continue to rise, hitting $2.8 trillion by 2034. On the debt side, the office expects it to rise from the current level near 100% of GDP to 122% in 2034.

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(Reuters) -Atlanta Federal Reserve Bank President Raphael Bostic on Friday made the case for patient reductions in the central bank’s policy rate to somewhere between 3% and 3.5% by the end of next year, a pace that would get inflation down to its 2% target by then and keep the U.S. economy out of recession.     “I’m not in a rush to get to neutral,” Bostic told the Mississippi Council on Economic Education Forum on American Enterprise in Jackson, Mississippi. “We must get inflation back to our 2% target; I don’t want us to get to a place where inflation stalls out because we haven’t been restrictive for long enough, so I’m going to be patient.” At the same time, he said, he envisions further cuts to the Fed’s target for short-term borrowing costs, now in the 4.75%-5.00% range. “If the economy continues to evolve as it does — if inflation continues to fall, labor markets remain robust, and we still see positive production — we will be able to continue on the path back to neutral,” he said.A neutral Fed policy rate — where borrowing costs neither stimulate nor restrict economic growth — is probably in the 3% to 3.5% range, he said. Inflation, currently at 2.2% by the Fed’s preferred measure, will likely get to the Fed’s 2% target toward the end of 2025, and “that should be sort of the timetable for when we should get to neutral,” he said.Financial markets are currently pricing in two quarter-point interest rate cuts before the end of the year and further reductions next year, likely bringing the policy rate to a 3.25%-3.5% range by September 2025.The Fed reduced its policy rate by a bigger-than-expected half-of-a-percentage point last month to keep borrowing costs from cooling the labor market too sharply. Since then, readings on the job market have come in stronger than expected, with monthly job growth accelerating and the unemployment rate ticking down to 4.1%.Bostic has said he expects only a single quarter-point cut over the last two Fed meetings of the year.”A recession has never been in my outlook,” Bostic said. “I’ve always felt that there was enough momentum in this economy to absorb the restrictiveness of our policy and drive inflation back down to its 2% target. I’m grateful that that’s been playing out so well. But the job is not done.”   More

“In light of the stronger-than-expected Q3 GDP growth reading and recently announced policy push, we now see q/q GDP growth accelerating to 6.5% (SAAR) in Q4,” UBS said in a note on Friday after upgrading its outlook on China economic growth.UBS now expects China gross domestic product, or GDP, to grow at 4.8% in 2024, up from a prior forecast of 4.6%, citing better-than-expected third-quarter economic data and a slew of new policy measures announced since late September.China reported Q3 real GDP growth of 4.6% year-on-year, slightly better than the 4.4% consensus estimate, underpinned by improved September performance in fixed asset investment and retail sales.The more sanguine outlook on China is also supported by Beijing’s willingness to continue roll out policy measures aimed at reducing government arrears, easing constraints on local government spending, and lowering mortgage rates, which UBS estimates could reduce household interest burden by RMB 150B a year.”[T]he additional fiscal resources will likely create a stronger positive fiscal impulse in Q4 than we had assumed in our earlier forecast,” UBS added.But beyond China, the outcome of the U.S. election, may offset even a large fiscal bazooka from Beijing, particular if pro-tariff Republican presidential candidate Donald  Trump is victorious. In the event of a sharp U.S. tariff hike, China’s growth could fall below 4% “even with bigger policy stimulus,” UBS said.  More

NEW YORK – Facebook (NASDAQ:META) owner Meta said on Friday it was releasing a batch of new AI models from its research division, including a “Self-Taught Evaluator” that may offer a path toward less human involvement in the AI development process.The release follows Meta’s introduction of the tool in an August paper, which detailed how it relies upon the same “chain of thought” technique used by OpenAI’s recently released o1 models to get it to make reliable judgments about models’ responses. That technique involves breaking down complex problems into smaller logical steps and appears to improve the accuracy of responses on challenging problems in subjects like science, coding and math.Meta’s researchers used entirely AI-generated data to train the evaluator model, eliminating human input at that stage as well.The ability to use AI to evaluate AI reliably offers a glimpse at a possible pathway toward building autonomous AI agents that can learn from their own mistakes, two of the Meta researchers behind the project told Reuters.Many in the AI field envision such agents as digital assistants intelligent enough to carry out a vast array of tasks without human intervention.Self-improving models could cut out the need for an often expensive and inefficient process used today called Reinforcement Learning from Human Feedback, which requires input from human annotators who must have specialized expertise to label data accurately and verify that answers to complex math and writing queries are correct.”We hope, as AI becomes more and more super-human, that it will get better and better at checking its work, so that it will actually be better than the average human,” said Jason Weston, one of the researchers.”The idea of being self-taught and able to self-evaluate is basically crucial to the idea of getting to this sort of super-human level of AI,” he said.Other companies including Google (NASDAQ:GOOGL) and Anthropic have also published research on the concept of RLAIF, or Reinforcement Learning from AI Feedback. Unlike Meta, however, those companies tend not to release their models for public use.Other AI tools released by Meta on Friday included an update to the company’s image-identification Segment Anything model, a tool that speeds up LLM response generation times and datasets that can be used to aid the discovery of new inorganic materials. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A rise in fuel duty would rekindle inflation and be “catastrophic” for British businesses, motoring groups have warned, as Rachel Reeves weighs lifting a 13-year freeze on the tax to help bridge a £40bn funding gap.People briefed on the chancellor’s thinking said she is expected to announce the end of the “temporary” 5p cut in fuel duty from next year. The measure was introduced in 2022 after energy prices rose following Russia’s full-scale invasion of Ukraine, and has been continued by every chancellor since. Reeves has also been urged by Treasury officials to end the 13-year freeze on fuel duty, although she will weigh the fiscal gain of the move against its impact on the “working people” she has vowed to protect.Tax rises are set to form the centrepiece of her response to close a shortfall of funding needed to protect key government departments from real-terms spending cuts, as the chancellor prepares for the Budget on October 30. Fuel duty, which at present is 52.95p per litre for petrol and diesel, is supposed to rise every year in line with inflation but has in effect been frozen since 2011 as successive chancellors curry favour with motorists.The Campaign for Better Transport has estimated that ending the 5p cut and reinstating annual inflation-linked rises would add £4.2bn in revenue for the Treasury.On Friday, the Road Haulage Association called on Reeves to maintain the current freeze, arguing that businesses would not be able to take on additional costs with profit margins already squeezed. “Firms are under pressure as it is and such a rise in fuel duty would be catastrophic for many, in particular Britain’s small and medium enterprises,” said Richard Smith, managing director of the RHA.Edmund King, president of the AA motoring organisation, said an increase in fuel duty would be ill-timed, citing the continuing global uncertainty over energy prices due to the conflicts in the Middle East and Ukraine. “Hiking fuel duty could backfire on working people and fuel inflation,” said King. “Everything from the price of food in supermarkets to the delivery of social care within our communities is impacted by pump prices, and an unnecessary hike in fuel duty could make things worse.”In March, then-chancellor Jeremy Hunt decided to maintain the 5p cut on fuel duty and freeze the charge for another year in an effort to ease cost of living pressures. The measure was initially welcomed by motoring groups, with the government claiming it would save car drivers about £50 this year. But the automotive industry has criticised the extension of the discount as it makes it harder for carmakers to meet electric vehicle sales quotas that come into force this year. Petrol prices have come down since rising in the wake of Russia’s full-scale invasion of Ukraine, with the average price of a litre of petrol now about 135p compared with 146p in January 2022, according to the RAC. The motoring group also said drivers were not actually benefiting from the cut, claiming retailers had failed to pass on the lower petrol and diesel prices in order to boost their margins.  More

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