Moody's Analytics Chief Economist Mark Zandi warned that the United States is moving toward a "fiscal reckoning" after recording a $1,992 billion deficit for fiscal year 2026. The Treasury Department reported $7,396 billion in total outlays for the period ending Sept. 30. The Treasury Department reported $5,403 billion in total receipts for the same period. Zandi noted that the deficit represents more than 6% of gross domestic product (GDP). Federal net interest spending reached $1,052 billion during the fiscal year, exceeding the $965 billion spent on national defense.
The primary budget deficit, which excludes interest payments, reached nearly 3% of GDP. Zandi called the primary deficit "eye-popping." Zandi said the primary budget should be in surplus or balanced because unemployment remains low. Zandi attributed $1 trillion in interest payments to the growing debt load.
Zandi observed that global investors appear to be demanding higher rates to compensate for mounting risk. The 10-year Treasury yield rose by about one percentage point this year. Zandi said the increase is among the largest of any major economy. Zandi noted that countries with the heaviest interest burdens experienced the biggest yield increases.
Zandi warned that a self-reinforcing cycle threatens to develop in the economy. Zandi explained that higher rates increase debt and interest payments, which subsequently push rates higher. Zandi acknowledged that other countries face similar problems. However, Zandi emphasized that the United States is the most important because U.S. Treasuries serve as the global benchmark.
The 30-year Treasury bond yielded 5.41% at the last check. The 10-year Treasury bond yielded 5.07%. The two-year Treasury bond yielded 4.73%. The iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) tracks the long end of the U.S. Treasury yield curve, including the 30-year benchmark bond. TLT closed 0.10% higher at $80.05 on Friday. TLT was down 8.89% year-to-date. TLT was down 1.03% over the last month. TLT was down 12.36% over the last year.
The S&P 500 index has advanced 11.68% year-to-date. The Nasdaq Composite index was up 12.50% year-to-date. The Dow Jones index gained 7.48% year-to-date.
The SPDR S&P 500 ETF Trust (NYSE:SPY), which tracks the S&P 500, fell 1.11% to $763.25 on Friday. The Invesco QQQ Trust ETF (NASDAQ:QQQ), which tracks the Nasdaq-100, declined 2.50% to $709.80 on Friday. The State Street SPDR Dow Jones Industrial Average ETF Trust (NYSE:DIA), which tracks the Dow, ended Friday 0.38% lower at $519.10. SPY rose 0.64% in premarket trading on Monday. QQQ rose 1.30% in premarket trading on Monday. DIA advanced 0.027% in premarket trading on Monday.
Top Economist Warns US Fiscal Deficit Reaches $1.99 Trillion in 2026
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Summary
Top Economist Warns US Fiscal Deficit Reaches $1.99 Trillion in 2026 under pressure from rising CFT compliance costs and global regulatory shifts like MiCA. Moody's Analytics Chief Economist Mark Zandi warned the U.S. is heading toward a 'fiscal reckoning' after recording a $1,992 billion deficit for fiscal year 2026. The Treasury Department reported $7,396 billion in total outlays and $5,403 billion in total receipts for the period ending Sept. 30. Zandi noted the deficit represents more than 6% of GDP, with federal net interest spending reaching $1,052 billion, exceeding the $965 billion spent on national defense.
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