The U.S. debt and deficit problem worsened during President Donald Trump‘s first month in office, as the budget shortfall for February passed the $1 trillion mark even though the fiscal year is not yet at the halfway point.

Government spending eased slightly on a monthly basis though it still far outpaced revenue, according to a Treasury Department statement Wednesday. The deficit totaled just over $307 billion for the month, nearly 2½ times what it was in January and 3.7% higher than February 2024.

Receipts and expenditures set records for the month, a Treasury spokesman said.

For the year, the deficit totaled $1.15 trillion through the first five months of fiscal 2025. The total is about $318 billion more than the same span in 2024, or roughly 38% higher, and set a record for the period.

Net costs to finance the $36.2 trillion national debt edged lower to $74 billion for the month. However, the total net interest payments year to date rose to $396 billion, just behind national defense and health. Social Security and Medicare are the largest costs in the U.S. budget.

The deficit swelled in the final three years of former President Joe Biden’s term, growing from $1.38 trillion to $1.83 trillion.

Trump has made getting the government’s fiscal house in order a priority since taking office. Since taking over, he created the so-called Department of Government Efficiency, led by Elon Musk. The advisory board has spearheaded job cuts across multiple departments in addition to early retirement incentives. A Treasury spokesman said there were no apparent impacts yet from the DOGE efforts but referred further comment to the Musk-led panel.

At the same time, Trump wants to extend the Tax Cuts and Jobs Act, spearheaded during his first administration. While Trump has touted growth that the tax reductions would bring, multiple think tanks say renewing the act also would add $3.3 trillion to the deficit over the next decade.

Prices for goods and services moved up less than expected in February, providing some relief as consumers and businesses worry about the looming impact tariffs might have on inflation, the Bureau of Labor Statistics reported Wednesday.

The consumer price index, a wide-ranging measure of costs across the U.S. economy, ticked up a seasonally adjusted 0.2% for the month, putting the annual inflation rate at 2.8%, according to the Labor Department agency. The all-item CPI had increased 0.5% in January.

Excluding food and energy prices, the core CPI also rose 0.2% on the month and was at 3.1% on a 12-month basis. The core CPI had climbed 0.4% in January.

Economists surveyed by Dow Jones had been looking for 0.3% increases on both headline and core, with respective annual rates of 2.9% and 3.2%, meaning that all of the rates were 0.1 percentage point less than expected.

Stock market futures added to gains after the release while Treasury yields rose. Markets have been highly volatile as the Dow Jones Industrial Average has slipped 6% over the past month.

“A lot of this inflation data does not incorporate what is to come and what already has happened for tariffs,” said Kevin Gordon, senor investment strategist at Charles Schwab. “The vagaries and uncertainties associated with policy are still a much stronger force in the market than anything CPI-related or in terms of one data point.”

Shelter costs moved up 0.3%, less than in January but still responsible for about half the monthly increase in the CPI, the BLS said. The category makes up more than one-third of the total weighting in the CPI, with particular focus on a measure in what homeowners estimate they could get in rent for their properties, which also increased 0.3%.

Food and energy indexes both increased 0.2%. Used vehicle prices jumped 0.9% and apparel rose 0.6%. Within food, egg prices soared another 10.4%, taking the 12-month increase to 58.8% and pushing a broader measure that also includes meat, poultry and fish up 7.7% on the year. Beef prices also climbed 2.4% in February.

Motor vehicle insurance posted a 0.3% increase on the month and was up 11.1% annually. However, airline fares slipped 4% in February and were down 0.7% from a year ago.

Inflation-adjusted average hourly earnings increased 0.1% for the month and were up 1.2% from a year ago, the BLS said in a separate release.

The report comes at a potentially critical juncture for the U.S. economy and financial markets, which have been shaken lately as President Donald Trump escalates a trade war and concerns rise of a growth scare.

In the latest developments, Trump’s 25% duties on steel and aluminum took effect Wednesday, prompting retaliatory measures from the European Union. Trump also has slapped 20% levies on goods from China.

Federal Reserve officials are watching the developments closely. Central bank policymakers generally consider tariffs to have modest impacts on inflation and often are viewed as one-off measures that don’t have lasting impact on longer-term gauges.

However, a broader trade war could change that if the pace of increases becomes more ingrained in the economy. Markets currently expect the Fed to resume cutting interest rates in June, with a total of 0.75 percentage point in reductions by the end of 2025.

“The February CPI release showed further signs of progress on underlying inflation, with the pace of price increases moderating after January’s strong release,” said Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management. “While the Fed is still likely to remain on hold at this month’s meeting, the combination of easing inflationary pressures and rising downside risks to growth suggest that the Fed is moving closer to continuing its easing cycle.”

The Fed meets next week and is widely expected to hold its key borrowing rate in a target range between 4.25%-4.5%.

Economic growth is trending negative in the first quarter, according to the Atlanta Fed’s GDPNow tracker of incoming data. The measure has pegged Q1 growth at a 2.4% decline, which would be the first negative growth quarter in three years.