Author: slightbourne@noblecapitalmarkets.com

The US government posted a $95 billion budget deficit in January, marking a sharp improvement from the same month a year earlier as revenue gains — including a surge in customs duties — outpaced modest growth in federal spending.

According to data released by the Treasury Department, January’s deficit was $34 billion lower than in January 2025, a decline of 26%. After adjusting for routine calendar-related payment shifts, including benefit disbursements affected by weekends and holidays, the deficit would have been just $30 billion — a 63% drop from the comparable period last year.

Government receipts totaled $560 billion in January, an increase of $47 billion, or 9%, compared with a year earlier. Meanwhile, federal outlays reached $655 billion, up $13 billion, or 2%. Both receipts and spending set records for the month of January, reflecting the continued expansion of the federal government’s revenue base and spending obligations. Despite the record figures, the deficit itself was not a record for the month.

The narrowing gap reflects stronger revenue performance relative to spending growth, a dynamic that has also carried into the broader fiscal year. Through the first four months of fiscal 2026, which began October 1, the deficit totaled $697 billion — down $143 billion, or 17%, from the same period in fiscal 2025.

Year-to-date receipts have climbed to $1.785 trillion, up 12% from the prior year period, while outlays have increased more modestly, rising 2% to $2.482 trillion. Both figures represent records for the first four months of a fiscal year, though the cumulative deficit is not historically unprecedented.

A significant driver of the revenue increase has been a surge in customs duties tied to tariffs implemented under President Donald Trump. Net customs receipts totaled $27.7 billion in January, roughly in line with December levels and only slightly below the approximately $30 billion monthly pace recorded late last year. By comparison, customs duties in January 2025 — before the administration’s tariff measures were announced — stood at just $7.3 billion.

On a fiscal year-to-date basis, net customs duties have reached $117.7 billion, a dramatic rise from $28.2 billion during the same period last year. The sharp increase underscores the growing role tariffs are playing in federal revenue collection.

Another factor contributing to January’s improved deficit figure was a rare decline in Treasury interest payments. Interest outlays on the public debt fell by $12 billion to $72 billion for the month. Treasury officials attributed the drop to technical adjustments related to inflation-linked securities, with some payments affected by last year’s government shutdown and delayed consumer price index data.

However, despite the January dip, interest costs remain elevated overall. Through the first four months of fiscal 2026, interest payments on the national debt have totaled $426 billion — a record for that period and up 9% from a year earlier.

While January’s improved deficit provides a measure of fiscal relief, the broader picture remains complex. Revenues are rising at a healthy pace, aided in part by tariffs, but interest costs continue to consume a growing share of federal spending. Whether the current trend of revenue outpacing spending can be sustained will depend on economic growth, inflation trends, and future policy decisions in Washington.

The strategic allure of the U.S. Healthcare and Life Sciences (HCLS) market—as detailed in our previous installments—is undeniable. However, for a European acquirer, the transition from “Strategic Intent” to “Value Realization” requires successfully navigating a regulatory landscape that is currently undergoing its most significant shift in decades. In 2026, the complexity of this “maze” has intensified, driven by a post-shutdown FDA backlog, a new era of “relative” data privacy standards, and aggressive national security oversight.

To preserve deal value, European buyers must move beyond traditional check-the-box compliance and adopt a multidisciplinary approach to regulatory due diligence.

The “Regulatory Velocity” Hurdle: Navigating the Post-Shutdown FDA

The 43-day U.S. federal government shutdown from October 1 to November 12, 2025, created a significant “bow wave” of administrative delays that continues to impact 2026 product launch timelines. While the FDA has resumed full operations, the “review clock” for many pending 510(k) and PMA submissions was effectively frozen for over a month, as the agency lacked the legal authority to accept new user-fee-bearing applications during the lapse.

For an investment  banker or operational expert, this isn’t just a compliance issue—it’s a valuation variable. European buyers must now conduct “Regulatory Velocity Diligence.” It is no longer enough to confirm that a target has a clean filing; you must assess where that filing sits in the current backlog. It is critical to differentiate between submissions funded by “Carryover User Fees”—which may have continued to move—and those reliant on “New Appropriations” that stalled. A delayed 510(k) or PMA approval can shift a valuation model by six to twelve months, fundamentally altering the deal’s ROI.

Data Governance: The New “Relative” Standard (GDPR vs. HIPAA)

Transatlantic data transfers have long been the “third rail” of HCLS M&A. However, a landmark September 4, 2025, ruling by the Court of Justice of the European Union (CJEU) in EDPS v. SRB has introduced a strategic “middle path” for European acquirers.

The court confirmed the concept of “Relative Personal Data.” In practice, this means that sufficiently pseudonymized data may be considered “personal data” for the U.S. seller (who holds the key) but not for the European recipient, provided the recipient cannot reasonably re-identify the individuals.

This is a massive win for M&A efficiency. European firms can now conduct more granular R&D and clinical trial diligence on U.S. assets without immediately triggering full GDPR liability, provided that strict technical and contractual “anti-identification” measures are in place. This “Privacy by Design” approach allows for faster integration of R&D pipelines while remaining compliant with both the EU’s strict privacy mandates and the U.S. HIPAA framework.

Beyond HIPAA: The State-Level Patchwork

While HIPAA provides a federal floor for data protection, European buyers often underestimate the complexity of state-level privacy laws. States like Texas have increasingly utilized their own statutory frameworks—such as the Texas Data Privacy and Security Act—to enforce standards that can overlap or even conflict with federal guidance.

For an Attorney, the risk lies in the “most restrictive” standard. If a target operates in multiple states, the integration team must ensure that data governance policies satisfy the most aggressive state regulator, not just the federal baseline. In the current 2026 climate, state-level enforcement is a primary driver of post-close litigation risk.

Safeguarding the Pipeline: The “Small Biotech” Exception

The 2026 Medicare drug price negotiations represent a seismic shift in U.S. reimbursement. However, the Inflation Reduction Act (IRA) includes a critical “Safe Harbor” for mid-market innovators: the Small Biotech Exception.

For European firms acquiring U.S. targets, verifying this status is paramount. If a drug’s Medicare Part D expenditure is less than or equal to 1% of total Part D expenditures, and the drug accounts for at least 80% of the manufacturer’s total sales, it may be exempt from negotiations until 2029. This provides a vital “valuation shield” for R&D pipelines, ensuring that the expected “Maximum Fair Price” (MFP) does not erode the deal’s long-term ROI.

The New CFIUS: National Security in Healthcare

The Committee on Foreign Investment in the United States (CFIUS) has significantly expanded its footprint throughout 2025 and 2026. While European allies often benefit from “excepted investor” status, HCLS deals involving large-scale U.S. patient data, biotech IP, or critical medical supply chain manufacturing are increasingly being flagged for national security reviews.

The strategy for 2026 is “Pre-emptive Transparency.” Buyers should evaluate whether a voluntary “Declaration” is safer than a full “Notice” to achieve deal-close certainty. In an era of heightened geopolitical sensitivity, the “health” of the target’s IP is as much a matter of national security as it is of clinical success.

Conclusion

Navigating the U.S. regulatory maze in 2026 requires a shift from defensive compliance to offensive strategy. By mastering the nuances of “Relative Data,” factoring in “Regulatory Velocity,” and identifying “Small Biotech” safe harbors, European acquirers can turn regulatory complexity into a competitive advantage.

In our next installment, we move from the ‘Legal Maze’ to the ‘Financial Truth,’ exploring the unique hurdles of U.S. GAAP vs. IFRS reconciliation and the art of the HCLS Quality of Earnings report.

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About the Authors:

Federal Reserve officials are increasingly signaling that interest rates may remain unchanged for an extended period as policymakers evaluate whether inflation is cooling enough to justify further adjustments. Cleveland Federal Reserve President Beth Hammack said this week that the central bank’s current policy stance is well positioned to remain steady while officials analyze incoming economic data and the lingering effects of prior rate cuts.

Hammack indicated that monetary policy is close to neutral, meaning it is no longer significantly restraining economic activity. After cutting rates three times last fall, the Federal Reserve has shifted into a wait-and-see mode, focused on determining whether those moves are sufficient to guide inflation back toward its long-term target without risking renewed price pressures.

Inflation remains the central concern. While price growth has slowed from its post-pandemic highs, Hammack noted that inflation has largely moved sideways for more than two years and could remain near 3% throughout 2026. That level is still well above the Fed’s 2% goal, raising the risk that inflation could become more entrenched if policymakers ease too quickly. As a result, she emphasized the need for clear and sustained evidence that inflation is decisively trending lower before considering further rate cuts.

Rather than attempting to fine-tune policy in response to short-term data fluctuations, Hammack expressed a preference for patience. She highlighted the importance of fully assessing the economic impact of last year’s rate reductions, as well as broader trends in growth, consumer demand, and financial conditions. At present, she views the risks of rates needing to move higher or lower as roughly balanced.

Cost pressures facing businesses remain a key area of focus. Hammack said tariffs have increased input costs for many companies, with some already passing those expenses on to consumers and others signaling additional price increases ahead. She also pointed to rising electricity and health insurance costs as factors that could keep inflation elevated. Taken together, these pressures make it difficult to determine whether inflation has fully peaked.

The labor market, however, appears to be on more stable footing. With the unemployment rate at 4.4%, conditions have changed little since last fall. Indicators suggest that job openings and job seekers are largely in balance, while initial claims for unemployment insurance remain low. Although some firms have announced layoffs, overall levels of job cuts remain in line with historical norms.

Looking ahead, Hammack expects economic growth to strengthen over the course of the year. She cited the delayed effects of last year’s rate cuts and ongoing fiscal support as factors that could encourage businesses to resume investment and expansion plans. Stronger growth, in turn, could support hiring and gradually push unemployment lower.

The Federal Reserve held its benchmark interest rate steady last month in a range of 3.5% to 3.75%. Hammack’s comments reinforce the view that policymakers are in no rush to alter policy, signaling that interest rates could remain on hold well into the year as the Fed waits for inflation to show more convincing signs of easing.