Bessent says US ended fiscal 2025 with lower deficit-to-GDP ratio

Treasury Secretary Scott Bessent said the US ended the fiscal year of 2025 with a lower deficit-to-GDP ratio than the year before and sounded an optimistic note for 2026, noting that the US is on its way to lowering deficits without causing a recession.

The Treasury has not been able to release the exact fiscal 2025 deficit-to-GDP figure due to the government shutdown. Bessent cited the Congressional Budget Office when making his claim Thursday that the key ratio was lower in the fiscal year ending Sept. 30 than the year prior.

He said that the deficit as a percentage of GDP will fall from 6.5% — which he said was the highest ever during periods when the US was not at war or in a recession — to 5.9%.

“The deficit to GDP now has a five in front of it,” he said during an appearance at a Federal Reserve banking conference.

Bessent on Thursday also referenced the tax bill that passed over the summer, noting that most taxpayers have not changed their withholding stance to reflect no tax and tips, no tax on overtime, low tax on Social Security, and interest deductibility if you buy an American car.

As a result, Bessent said he expects to see “substantial tax refunds” at the beginning of next year, which he believes will primarily benefit lower-income consumers in the bottom 50% who need the relief.

“They will change their withholding schedule, so their real take-home pay will be higher next year,” he said.

Referencing the individual tax side as well as full expensing for businesses on property, plant and equipment, and factories, he said, “I’m very optimistic that 2026 could be a very good year across the corporate and the consumer economy.”

Bessent also spent part of Thursday discussing how the Trump administration is approaching the banking industry with a focus on Main Street, emphasizing a priority to reduce capital requirements for mortgages and corporate credit so that lending can shift back to banks from nonbanks.

Read more: Mortgage rates are falling: Is it a good time to buy a house?

“Treasury is focused on ensuring that modernization of our capital framework ends the capital arbitrage that drives bank lending to nonbanks,” Bessent said. “This will likely entail reduced capital requirements for large bank loans, investment-grade corporate loans, and some other important exposures.”

Bessent noted that the post-2008 financial crisis regulatory framework, known as Dodd-Frank, has become a threat to the community bank model.

The share of outstanding bank loans held by community banks has decreased from 27% to 20%, while the number of new community banks created annually has dropped to an average of six per year since 2010, compared with 100 or more per year prior to the financial crisis. Since 2010, 3,600 community banks have been lost, a reduction of over 45%.

Bessent also said the administration favors reforms to the rating system, new processes for monitoring bank examiners’ compliance with regulations, an independent mechanism for banks to appeal criticisms from regulators, coordination to avoid duplicative examinations by different regulators, and review of the core platform providers.

Bowman has emphasized Bessent is the most engaged Treasury Secretary she has seen on community banking.

Bessent added that any changes to mortgage giants Fannie Mae and Freddie Mac — currently under government control — must not result in higher mortgage rates and must preserve equal access for small lenders, which will include continuation of the cash window and flat pricing for big and small institutions.

He also said he supported higher deposit insurance levels on non-interest-bearing business accounts.

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