The U.S. federal government's annual net interest costs have topped $1 trillion for the first time, as surging national debt combines with higher borrowing rates to swell the interest burden. The scale of those payments is eating into fiscal room, raising concerns that the current climb in rates could set off a cycle in which interest costs and debt feed on each other.
Net interest costs for fiscal 2026, which ran from October 2025 through September 2026, came to $1.05 trillion, or 1.397 quadrillion won, according to the Treasury Department and Bloomberg on the 18th. That is up about 8% from $970 billion a year earlier. The Peter G. Peterson Foundation, a U.S. fiscal research group, estimated that net interest costs equaled 3.2% of gross domestic product, exceeding the previous high of 3.16% set in 1991.
That makes net interest the third-largest item in federal spending. Interest payments have more than doubled in the four years since 2022, moving past defense outlays.
The jump reflects first of all the sheer growth in the debt itself. Debt held by the public, which excludes holdings within the government, has climbed past $32 trillion, roughly $10 trillion more than just five years ago.
Rising rates have compounded the increase. As of the end of September, the average rate the government pays stood at 3.52%, more than double the 1.47% of five years earlier.
Fiscal experts expect the burden to keep building. Major outlays such as defense and Social Security are projected to rise steadily, while revenue growth from economic expansion alone is unlikely to cover them, they said. "The problem is getting worse and worse," said Brett Loper, executive vice president of policy at the Peterson Foundation, adding that the question is not whether to wait for a disaster but to address the issue now.
Higher rates are expected to add particular pressure. Net interest costs rose $81.4 billion from a year earlier, but the increase could be far larger if rates keep climbing. Markets expect the Federal Reserve to raise its benchmark rate, currently 3.75% to 4.00%, at least once more this year. TD Securities estimated that a 1-percentage-point rise in Treasury yields would add $310 billion to interest costs in 2027.
Some warn the mounting burden could weaken the economy's underlying strength. Phillip Swagel, director of the Congressional Budget Office, said a negative shock that pushes rates higher, for whatever reason, could produce a "turbocharger effect" that rapidly worsens the situation. Karen Dynan, an economics professor at Harvard University, said she does not believe a fiscal crisis is imminent, but added that because the debt is so large, interest costs could leave the debt snowballing.