Short Answer
The model sees potential mispricing for the government to increase spending by at least $500 billion in 2025: 0.7% model vs 25.5% market, suggesting the market significantly overestimates this outcome.
1. Executive Verdict
- FY2025 federal outlays increased 4% to $7.0 trillion from FY2024.
- Social Security, Medicare, Medicaid spending rose $249 billion (8%).
- Expert Research projects $91 billion in supplemental spending for FY2025.
- Economic deviations resulted in a 2.5% COLA, boosting entitlements.
- Lower Treasury yields reduced government net interest costs in FY2025.
Who Wins and Why
| Outcome | Market | Model | Why |
|---|---|---|---|
| At least $500 billion | 28% | 0.7% | New infrastructure projects could increase federal spending by over $500 billion. |
| At least $1 trillion | 4% | 0.1% | A significant economic downturn could prompt over $1 trillion in new stimulus. |
Current Context
Global governments face rising spending, deficits, and fiscal sustainability concerns in 2025. Discussions are actively underway regarding the trajectory and implications of government spending increases across several nations, driven by rising deficits, specific departmental allocations, and concerns over fiscal sustainability and inflation. Recent developments include Australia’s Capital Territory projecting a significant deficit reduction for 2025-26, partly due to a new $4.1 billion health funding deal. Nationally, however, Australian government spending under Labor is reported to be growing 13 times faster than budgeted, with an additional $50 billion in new spending seen as contributing to higher inflation. In the United States, Federal Reserve Governor Lisa D. Cook noted robust Q3 2025 GDP growth but also a "two-speed" economy and a federal government shutdown that constrained Q4 2025 growth. The Bipartisan Policy Center highlighted the U.S. national debt's projected rise to 120% of GDP by 2035, urging structural changes to the budget process to achieve fiscal sustainability, given tendencies towards unchecked spending. Poland's fiscal deficit is projected by the International Monetary Fund (IMF) to reach 7% of GDP in 2025, with public debt at 59% of GDP, mainly due to increased social benefits, public sector compensation, and defense outlays. A survey also revealed that many Americans lack a clear understanding of federal government spending, making it difficult to discern accurate claims. Common concerns include long-term fiscal sustainability, the impact of increased spending on inflation, the effectiveness and efficiency of public funds, and the need for transparency and budget process reforms,,.
Key data reveals significant governmental outlays, deficits, and debt. Data points highlight substantial government spending and fiscal challenges for 2025 across key economies. U.S. federal spending is projected at $7.01 trillion for FY 2025, representing 23% of GDP, with the Congressional Budget Office (CBO) projecting $7.0 trillion, or 23.3% of GDP,. Federal spending per person in the U.S. reached $20,474 in FY 2025. Canada's Main Estimates for 2025-26 show $486.9 billion in budgetary spending. Australia has allocated A$785.7 billion for the 2025-26 financial year. In the United Kingdom, Resource Departmental Expenditure Limits (DEL) are set to increase from £535.0 billion in 2024/25 to £543.8 billion in 2025/26 (+1.6%), and Capital DEL from £114.6 billion to £129.5 billion in 2025/26 (+13.0%). Budget deficits are also substantial; the CBO estimated a U.S. federal deficit of $1.9 trillion for FY 2025, with the first five months reaching $1.1 trillion,. Australia projects a deficit of A$42.1 billion for 2025-26, and Poland's fiscal deficit is projected at 7% of GDP for 2025. Public debt is a growing concern, with U.S. federal debt held by the public projected at 100% of GDP in 2025, rising to 118% by 2035, while Poland's public debt is projected at 59% of GDP. Major areas of spending increases in the U.S. include mandatory programs such as Social Security, Medicare, and Medicaid, as well as interest on the public debt. Canada is increasing spending in defense, infrastructure, and housing, while health funding and infrastructure investments are notable in the UK and Australia. Economic growth figures include U.S. real GDP increasing at an annual rate of 4.4% in Q3 2025, with the Atlanta Fed's GDPNow model estimating 4.2% for Q4 2025,, and Poland's growth projected to accelerate to 3.3% in 2025.
Experts warn of unsustainable fiscal paths; key updates are approaching. Expert opinions consistently highlight the pressing need for fiscal responsibility and reform. The Congressional Budget Office (CBO) warns of an "unsustainable path" for the federal budget due to surging debt and rising deficits, driven primarily by Social Security, Medicare, and increasing net interest costs. Maya MacGuineas, President of the Committee for a Responsible Federal Budget, reiterates that federal spending continues to climb, largely due to the automatic growth of these major programs. Rachel O'Brien of Open the Books attributes the significant increase in federal spending per person to the expansion of the federal administrative state and "use it or lose it" spending practices. The Bipartisan Policy Center further emphasizes the urgency for Congress to implement structural changes to the budget process to achieve fiscal sustainability, given the current process's tendency towards unchecked spending and unpaid-for tax cuts. For Poland, the International Monetary Fund (IMF) has recommended a cumulative fiscal adjustment, suggesting either increased revenue generation or a more efficient public sector with targeted spending to stabilize public debt. TD Economics in Canada stresses that the context and composition of government spending are as critical as the amount, advocating for a growth-focused agenda with fiscal guardrails amidst projected elevated deficits. Upcoming events include the next update from the Atlanta Fed's GDPNow model on February 10, 2026, the expected tabling of Canadian Departmental Plans in June 2025, and the UK's Spending Review 2025 (SR25) presentation to Parliament in June 2025, setting departmental budgets until 2028-29 for day-to-day spending and until 2029-30 for capital investment.
2. Market Behavior & Price Dynamics
Historical Price (Probability)
Outcome probability
Date
The prediction market for a government spending increase of at least $500 billion in 2025 has demonstrated a sideways, range-bound trend. The price has fluctuated between a low of 10.0% and a high of 40.0%, ultimately returning to its starting price of 27.0%. This lack of a sustained directional move suggests the market is balancing competing factors and has not formed a strong consensus. The 40.0% level has acted as a clear resistance ceiling, while a support floor appears to have formed in the 19.0%-22.0% range, from which several significant rallies have originated. The price action is characterized by periods of low activity punctuated by sharp, news-driven volatility.
These significant price movements are directly tied to specific data releases and political events in January 2026. Spikes toward the upper end of the range were caused by news supporting higher spending. For instance, the surge to the 40.0% peak on January 13 was a direct reaction to a Treasury report confirming a $602 billion deficit in just the first three months of the fiscal year. Subsequent spikes to 35.0% were similarly driven by anticipated deficit data and news of a retroactive tax bill. In contrast, the sharp 10.0 percentage point drop on January 28 was a response to a partial U.S. government shutdown, an event that directly curtails government outlays and makes the $500 billion threshold less likely to be met.
The total volume of over 23,000 contracts, distributed across 718 data points, suggests that trading activity is concentrated around these specific news catalysts. This pattern of low baseline volume with sharp increases during major events indicates that market conviction is event-driven. Overall market sentiment remains cautious and uncertain. The consistent failure of the price to sustain levels above 40.0% implies that while traders acknowledge catalysts that could lead to a "YES" resolution, there is persistent skepticism due to countervailing factors like political gridlock and potential spending constraints. The market is pricing this outcome as possible, but not probable.
3. Significant Price Movements
Notable price changes detected in the chart, along with research into what caused each movement.
📉 January 28, 2026: 10.0pp drop
Price decreased from 35.0% to 25.0%
Outcome: At least $500 billion
What happened: The primary driver of the 10.0 percentage point drop in the prediction market price on January 28, 2026, for "At least $500 billion" government spending increase in 2025 was the impending and then actual partial government shutdown in the United States. On January 28, 2026, reports indicated that the federal government was days away from a partial shutdown, with funding for several agencies set to expire on January 30. This news, directly preceding the market drop, signaled fiscal constraint and uncertainty, which would lower the probability of significant spending increases. A partial government shutdown subsequently began on January 31, further reinforcing the perception of reduced or stalled government outlays. Social media activity was mostly irrelevant, as no specific influential posts from key figures or viral narratives related to government spending around this time were identified. The market movement appears to have been driven by traditional news and official announcements concerning the government's fiscal situation.
📈 January 27, 2026: 10.0pp spike
Price increased from 25.0% to 35.0%
Outcome: At least $500 billion
What happened: The primary driver of the 10.0 percentage point price spike in the "How much will the government increase spending in 2025?" prediction market on January 27, 2026, was likely the traditional news of the "One Big Beautiful Bill" retroactively impacting 2025 taxes. An Investopedia article published on January 27, 2026, reported that this bill introduced new tax breaks and deductions expected to increase average taxpayer refunds by 15% to 20% for 2025, which would equate to a substantial government fiscal outlay or reduction in revenue that could be interpreted as increased spending. This news coincided with the price move, directly addressing government action related to 2025 finances. Social media activity was irrelevant as no significant posts from key figures or viral narratives were found concerning this specific market movement around the given date.
📈 January 15, 2026: 13.0pp spike
Price increased from 22.0% to 35.0%
Outcome: At least $500 billion
What happened: The primary driver of the 13.0 percentage point spike in the prediction market on January 15, 2026, was likely the impending or anticipated release of data indicating significant increases in federal outlays for Fiscal Year 2025. Specifically, the Bipartisan Policy Center's Deficit Tracker, updated on January 16, 2026, reported increased outlays for major programs such as Social Security, Medicare, and Medicaid (up $46 billion or 9%) and interest payments on debt (up $22 billion or 14%) for the early part of FY2026, which would have factored into expectations for overall FY2025 spending trends. This traditional news and data release, reflecting substantial increases in government spending, coincided closely with the market movement. Social media activity was not identified as a primary driver.
📈 January 13, 2026: 21.0pp spike
Price increased from 19.0% to 40.0%
Outcome: At least $500 billion
What happened: The primary driver of the 21.0 percentage point spike in the "How much will the government increase spending in 2025?" prediction market on January 13, 2026, was the release of official government financial data. On that day, the Treasury Department confirmed a $602 billion deficit for the first three months of Fiscal Year 2026 (October-December 2025), a period directly overlapping with the end of calendar year 2025. This significant deficit figure, corroborated by the Congressional Budget Office's (CBO) estimate of a $601 billion deficit for the same period, coincided directly with the market movement and strongly indicated substantial government outlays for 2025. There is no evidence suggesting social media activity was the primary driver of this specific price movement.
4. Market Data
Contract Snapshot
The provided page content describes the market question ("How much will the government increase spending in 2025? Odds & Predictions") but does not contain information about the specific YES/NO resolution triggers, key dates/deadlines, or any special settlement conditions for this contract.
Available Contracts
Market options and current pricing
| Outcome bucket | Yes (price) | No (price) | Implied probability |
|---|---|---|---|
| At least $500 billion | $0.28 | $0.75 | 28% |
| At least $1 trillion | $0.04 | $0.98 | 4% |
Market Discussion
Discussions surrounding government spending in 2025 are largely centered on projected increases driven by mandatory programs like Social Security, Medicare, and rising interest payments on the national debt, leading to significant federal deficits . While some advocate for spending cuts and fiscal responsibility, debates also revolve around extending tax cuts and potential funding mechanisms such as tariffs or changes to existing programs . There are concerns about the long-term economic impact of unchecked borrowing and ongoing challenges in addressing public misinformation regarding federal expenditures.
5. How Did FY2025 Discretionary Spending Differ From CBO Projections?
| CBO FY2025 Baseline Projection | $1.8 trillion |
|---|---|
| Enacted FY2025 Discretionary Spending | $1.7964 trillion, |
| Net Dollar Difference (Projected vs. Enacted) | -$3.6 billion, |
CBO accurately projected FY2025 discretionary spending, differing by $3.6 billion. The Congressional Budget Office (CBO) initially projected Fiscal Year 2025 discretionary spending at approximately $1.8 trillion in its January 2025 baseline. Following the completion of the appropriations process in March 2025, total enacted discretionary spending was finalized at about $1.7964 trillion,. This represented a net dollar decrease of $3.6 billion from the CBO's baseline projection,. The CBO's projection demonstrated remarkable accuracy, overestimating the final amount by only 0.2%.
Enacted spending exceeded statutory caps, highlighting soft constraints. Despite the minor reduction from the CBO's projection, the final enacted spending of $1.7964 trillion remained substantially above the Fiscal Responsibility Act of 2023's statutory cap of $1.606 trillion. This outcome indicates that statutory spending caps often function as soft constraints, as Congress frequently employs legislative adjustments and mechanisms like emergency designations to fund priorities beyond official limits. While the marginal $3.6 billion reduction suggests final compromises are often minimal, the broader trend points to normalized spending levels consistently exceeding official caps, thereby contributing to elevated deficits and public debt.
6. What is the Probability-Weighted Estimate for FY2025 Supplemental Spending?
| Probability-Weighted Point Estimate | $91.00 billion (This report) |
|---|---|
| Projected Low-End Supplemental Spending | $75 billion (This report) |
| Projected High-End Supplemental Spending | $150 billion (This report) |
The Expert Research Unit forecasts $91 billion in supplemental spending for FY2025. This probability-weighted estimate falls within a projected range of $75 billion to $150 billion. This figure represents U.S. government spending increases entirely outside the regular appropriations process and baseline forecasts, derived from an event-driven methodology that assigns probabilities and estimates financial impacts to inform strategic decision-making and prediction markets.
Foreign conflicts and domestic disasters drive significant spending projections for FY2025. The war in Ukraine has a 90% probability of requiring a major supplemental request, estimated at $35 billion to $50 billion, reflecting an established burn rate of aid . Similarly, the conflict in Israel and the Middle East has a 95% probability of needing $15 billion to $25 billion in supplemental funding, including a recently announced $8 billion arms sale to Israel . On the domestic front, natural disasters are assigned an 80% probability, with an estimated financial impact of $20 billion to $55 billion, driven by the high likelihood of an above-average hurricane season and persistent threats from wildfires and flooding .
Supplemental spending is historically common, with current analysis informing markets. Historical trends indicate that supplemental spending is a regular feature of the U.S. fiscal system, often exceeding $50 billion annually even without major wars or pandemics . The COVID-19 pandemic also fundamentally altered the political perception of acceptable emergency spending scales . This analysis offers a granular, event-driven model that can help identify potential mispricing in prediction markets by providing a rigorous assessment of underlying geopolitical and environmental risks, particularly for market outcomes within the $75 billion to $150 billion range .
7. How Do Economic Data Deviations Impact 2025 Entitlement Spending?
| 2025 Social Security COLA | 2.5% |
|---|---|
| H1 2025 Avg Unemployment Rate | ~4.17% |
| CBO 2025 Unemployment Projection | 4.5% |
Actual Q3 2024 inflation and H1 2025 unemployment deviated from CBO projections. The average CPI-W for Q3 2024 resulted in a 2.5% Cost-of-Living Adjustment (COLA) for Social Security in 2025. This figure is lower than what might have been implied by the Congressional Budget Office's (CBO) broader 3.1% PCE inflation forecast for 2025. Concurrently, the average unemployment rate for the first half of 2025 was approximately 4.17%, indicating a stronger labor market than the CBO's full-year projected 4.5%.
These economic deviations lead to specific, quantifiable changes in mandatory spending. The 2.5% COLA will directly increase Social Security outlays by approximately $43.1 billion in 2025. In contrast, the stronger-than-expected labor market, with its lower unemployment rate, is estimated to reduce Unemployment Insurance (UI) spending by about $2.93 billion compared to the CBO's initial ~$40 billion projection for UI. This reduction stems from fewer claimants, a smaller pool of continuing beneficiaries, and potentially shorter claim durations.
Overall mandatory spending increases despite Unemployment Insurance savings. The net effect of these specific data deviations is an increase in overall mandatory spending, although the savings from Unemployment Insurance expenditures partially mitigate the larger automatic increase in Social Security benefits. This analysis highlights how real-time economic indicators can alter the federal fiscal landscape from initial baseline projections, underscoring the dynamic nature of mandatory spending programs driven by statutory formulas and economic conditions.
8. How Much Lower Were FY2025 Net Interest Costs Than Projected?
| 10-Year Treasury Yield (End Q3 2025) | 4.15% |
|---|---|
| 2-Year Treasury Yield (End Q1 2025) | 3.89% |
| 3-Year Note Auction Yield (Sept 9, 2025) | 3.485% |
U.S. Treasury yields declined in FY2025, lowering government borrowing costs. The U.S. Treasury market experienced a substantial dovish shift in its yield curve during FY2025, directly contradicting the "higher-for-longer" interest rate assumptions embedded in late-2024 Congressional Budget Office (CBO) forecasts. Specifically, the 10-year Treasury yield decreased from 4.57% at the beginning of 2025 to 4.15% by the end of Q3 2025, accompanied by significant declines in shorter-term rates. These trends, confirmed by specific auction results, indicate that the U.S. government's actual borrowing costs were notably lower than initially projected.
These lower rates generated substantial savings on national debt interest. This sustained decline in market interest rates is estimated to have resulted in approximately $59.4 billion in savings on net interest paid for FY2025, when compared to the CBO's projected baseline from late 2024. These financial benefits accrue from the government's ability to refinance maturing debt and finance new deficits at more favorable, lower rates. Consequently, total net interest outlays for the fiscal year could potentially decrease to a range closer to $915 billion to $990 billion.
However, economic concerns driving lower yields could offset savings. Despite the direct reduction in mandatory interest spending, the underlying reason for these lower yields—growing economic concerns and uncertainty—presents a critical dynamic. Should these concerns escalate into an economic slowdown or recession, the financial savings gained from lower interest payments could be partially or entirely negated by increased government spending on automatic stabilizers, such as unemployment benefits, or potential new fiscal stimulus measures.
9. How Accurate Are CBO Federal Outlay Projections Historically?
| CBO Outlay Overestimation | 1.7% above actual (1984-2015 data) |
|---|---|
| Average Absolute Deficit Error | 1.1% of GDP (1985-2022 data) |
| Example FY2025 Outlay Deviation | ~$319 billion (Based on 1.1% of $29T GDP assumption) |
The Congressional Budget Office (CBO) consistently overestimates federal outlays and budget deficits. From 1984 to 2015, the Congressional Budget Office's budget-year projections for federal outlays exceeded final reported figures by an average of 1.7%. This systematic bias is further supported by findings that CBO overestimated the budget deficit in approximately two-thirds of its projections between 1985 and 2022. The typical magnitude of error is also significant, as the average absolute error in CBO's budget-year deficit projections was 1.1 percent of GDP from 1985 to 2022, indicating the scale of deviation regardless of direction. CBO's methodology involves adjusting its baseline projections to incorporate new legislation, ensuring projection errors are primarily attributable to economic and technical assumption discrepancies. Definitive actual outlay data is sourced from the U.S. Department of the Treasury's Monthly Treasury Statement (MTS).
CBO projections require downward adjustment for market resolution. For prediction markets, these findings suggest that the CBO's initial projection should not be treated as a median outcome, but rather as a starting point requiring adjustment downward by the historical overestimation bias of 1.7%. A probabilistic distribution should then be constructed, using the 1.1% of GDP absolute error as a proxy for the expected deviation's standard deviation.
Effective market calibration demands sophisticated, forward-looking analysis. To accurately calibrate for prediction markets, analysts should move beyond simple reliance on the CBO's headline number, establishing a historically-informed baseline and modeling uncertainty using a probability distribution. Additionally, proactive analysis considering current economic conditions, the political landscape, and potential 'fat-tail' events (e.g., major disasters, geopolitical crises) is crucial, as these factors can cause significant deviations from historical averages and are not fully captured by past data patterns.
10. What Could Change the Odds
Key Catalysts
The prediction market on federal government spending in 2025 is primarily influenced by the final, official reporting of U.S. federal government expenditures for Fiscal Year 2025 (FY2025), which concluded on September 30, 2025. Current information indicates federal outlays for FY2025 totaled $7.0 trillion, marking a $275 billion (4%) increase from FY2024, largely driven by an $249 billion (8%) rise in outlays for Social Security, Medicare, and Medicaid. For the first half of Calendar Year 2025, federal spending was $142 billion higher compared to the same period in 2024.
Potential bullish catalysts that could push the market higher include the confirmation of higher-than-expected FY2025 spending in definitive reports, such as the Congressional Budget Office's (CBO) full "Budget and Economic Outlook" and final Monthly Treasury Statements (MTS). While a 4% increase has been reported, any unexpected additional spending or upward revisions for the full year 2025 would be significant. Unforeseen, albeit unlikely, upward revisions to historical 2025 spending figures by authoritative sources like the Treasury Department or CBO could also move the market.
Conversely, bearish catalysts that could drive the market lower include official revisions from the Treasury Department or CBO that significantly reduce the currently reported 4% increase in FY2025 outlays. Furthermore, if the actual spending under the full-year continuing resolution for FY2025 turns out to be lower than the current reported increase once fully finalized, this would act as a bearish catalyst. Crucial upcoming data releases, such as the CBO's "The Budget and Economic Outlook: 2026 to 2036" on February 11, 2026, and subsequent Monthly Treasury Statements, will provide further clarity and potentially revise these figures before the April 1, 2026, settlement date.
Key Dates & Catalysts
- Expiration: April 01, 2026
- Closes: April 01, 2026
11. Decision-Flipping Events
- Trigger: The prediction market on federal government spending in 2025 is primarily influenced by the final, official reporting of U.S.
- Trigger: Federal government expenditures for Fiscal Year 2025 (FY2025), which concluded on September 30, 2025.
- Trigger: Current information indicates federal outlays for FY2025 totaled $7.0 trillion, marking a $275 billion (4%) increase from FY2024, largely driven by an $249 billion (8%) rise in outlays for Social Security, Medicare, and Medicaid [^] .
- Trigger: For the first half of Calendar Year 2025, federal spending was $142 billion higher compared to the same period in 2024.
13. Historical Resolutions
Historical Resolutions: 2 markets in this series
Outcomes: 2 resolved YES, 0 resolved NO
Recent resolutions:
- KXGOVTSPEND-26-1B: YES (Apr 30, 2025)
- KXGOVTSPEND-26-100B: YES (Aug 06, 2025)
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