The numbers: The U.S. federal budget deficit narrowed to $2.5 trillion in the first ten months of the fiscal year, the Treasury Department said Wednesday. This is down from a $2.8 trillion deficit over the same period last year.

In July, the deficit widened to a $302 billion, a record for the month. The deficit was $63 billion in the same month last year.

Key details: The comparison of the July deficit with last July is difficult because in 2021 taxes for most Americans were deferred until mid-July. As a result receipts last month were 54% smaller than one year ago.

Outlays in July were $564 billion, down 10% from the same month one year ago.

Big picture: It will be a close call on whether the federal deficit this year will exceed last year’s record $3 trillion deficit. The fiscal year ends in September.

The deficit is expected to narrow next year because so much of the emergency pandemic support payments will expire.

Yet more fiscal expansion is on the way. The Senate on Tuesday passed a $1 trillion infrastructure package and sent it to the House for consideration. The upper chamber then started work on a second $3.5 trillion package of further government spending. President Joe Biden will have to knit his party together to pass the larger measure. Already moderates like Sen. Joe Manchin, a West Virginia Democrat, have voiced concern about the impact of the $3.5 trillion measure on the $29 trillion national debt. Ultimately, economists think the package, which can become law with only votes from Democrats, will be scaled back to about $2 trillion before final passage.

Market reaction: The yield on the 10-year Treasury note

has stayed relatively low this year despite worries about inflation and the national debt.

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