Where does that leave deficits? Those have also been steadily improving on an annual basis. For the 12 months that ended in January, the deficit shrank 34 percent from the same period year earlier, continuing a decline that began in June. As a share of GDP, the 12-month deficit totaled 9.6 percent, still high by historical standards, but nearly half of what it was when it peaked at 18.6 percent in March 2021 and the lowest it's been since March 2020. And while cumulative deficits over the past two years have added loads to the government's bottom line — federal debt held by the public totals roughly $23 trillion, up from $17 trillion before the pandemic — the surge in economic growth has helped improve the overall debt picture. Debt as a share of GDP has actually declined, from 100.8 percent in December 2020, to 96.5 percent at the end of last year — lower than the Congressional Budget Office projected it would be at any point over the next decade. What does that mean for the economy? White House officials — as well as Federal Reserve Chair Jerome Powell and Governor Lael Brainard — have said waning fiscal support this year could act as a potential brake on the economy and help cool inflation pressures. "Always important to not overinterpret [one] new data point," Bernstein said on Twitter, pointing to a WSJ story on the latest Treasury data. But "this may be an early sign of a shift we've long discussed" he added. Republicans and some moderate Democrats, including Sen. Joe Manchin, have pointed to elevated deficits and debt, and the potential for them to fuel higher inflation, as a reason not to support the president's social spending agenda. But it's not clear that improving deficits alone would sway the West Virginia Democrat — he has called for any additional spending to not only be paid for but to reduce deficits, and last week he said the Federal Reserve needs to "stop pussyfooting around" and "tackle inflation head-on." There's one giant elephant in the room — interest rates. Net Interest payments on the federal debt last year totaled 1.5 percent as a share of GDP, below the historical average over the past 20 years and well within a range economists have suggested is fiscally sustainable. Now, as the Fed seeks to rein in surging inflation, short-term interest rates are poised to rise dramatically. While rising prices can help the fiscal picture by inflating away the debt, higher rates could also push up the government's interest costs this year — and it would only take a small adjustment to make a big difference, potentially on the order of billions of dollars a month. It's a talking point Republicans will surely seize on later this year, as they hammer Democrats over spending, debt and inflation. IT'S MONDAY — Congrats to L.A. Rams fans on your team's Super Bowl win. Such a heart-breaking loss for the Bengals. For the rest of you: Did you click on the Coinbase QR code ad? Got tips or takes to share? Email us at kdavidson@politico.com or aweaver@politico.com , or find us on Twitter @katedavidson and @aubreeeweaver.
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