TBAC Warns of $1.45 Trillion US Funding Shortfall

The Treasury Borrowing Advisory Committee warned in minutes released August 5 that the United States government faces a $1.45 trillion funding shortfall for fiscal 2027–28 based on current auction sizes. This projection comes as total annual interest payments on government debt now exceed $1 trillion, surpassing national defense spending.

Treasury Secretary Scott Bessent has relied heavily on short-term Treasury bills to finance a roughly $2 trillion annual deficit. While this strategy lowers immediate borrowing costs, it increases the government's exposure to inflation and rising interest rates. Bessent has continued this practice despite previously criticizing it as "activist Treasury issuance," a policy originally initiated by former Secretary Janet Yellen.

This borrowing approach coincides with a planned balance sheet reduction by the Federal Reserve under Chair Kevin Warsh. The combination of the Treasury's strategy and the central bank's move to shrink its holdings could result in a surge of long-term bond supply with fewer buyers available to absorb the debt.