Economy 4 min read By Bethany Hadley
US interest bill on $40 trillion national debt jumps 14% in nine months
Washington's interest payments on the federal debt have surged 14% in the first ten months of fiscal 2026, reaching $963 billion, driven by record borrowing and higher Treasury yields.
The United States government's interest bill on its $40 trillion national debt has exploded by 14% in just nine months, far outpacing growth in every other major spending category and intensifying pressure on the federal budget. According to the Congressional Budget Office's Monthly Budget Review for fiscal 2026, interest costs reached $963 billion in the first ten months of the fiscal year, up from $846 billion during the same period in fiscal 2025.
The increase dwarfs growth in other entitlement programmes. Social Security outlays rose just 5% over the same period, while Medicare and Medicaid each grew 8%. Interest payments now equal 70.1% of Social Security spending, up from 64.9% a year ago. A year earlier, interest had only just overtaken Medicare to become the second-largest budget cost after Social Security, and the gap is now widening rapidly.
Two forces are driving the surge. The first is the sheer scale of federal borrowing. Since the start of 2026, the national debt has swelled by 7.3% to $40 trillion, and since the start of 2019 it has grown by nearly 50%. The trajectory is steepening: in the past three weeks alone, the debt has grown at an annualised pace approaching 15%. The second is higher interest rates. Roughly half of all debt held by the public is in Treasury notes with maturities of two to ten years. Since July last year, the two-year yield has risen from 3.94% to 4.18%, while the ten-year yield has climbed from 4.37% to 4.69%.
The budget deficit is compounding the problem. Through July, the deficit had grown by 10% to $1.8 trillion, and the Treasury will need to issue ever more debt to fund operations, which in turn pushes interest costs higher still. Both factors are worsening simultaneously, creating what analysts describe as a self-reinforcing spiral that poses a growing threat to the US economy.
Treasury Secretary Scott Bessent has unveiled a plan to address the issue, announced on August 19, under which the Treasury would buy large quantities of ten-year Treasuries and offset those purchases by selling newly issued shorter-term bonds at lower rates. The strategy is designed to shift the debt mix towards shorter maturities and lower the average yield paid on government borrowings. The announcement was welcomed on Wall Street, but economists note it is a stop-gap measure that does not address the fundamental driver of higher rates: the federal government's enormous and growing borrowing requirement.
The interest explosion has received relatively little attention compared with the Bessent plan, yet it remains the single most powerful force shaping the federal budget's trajectory. With both debt levels and interest rates expected to keep climbing, the carrying cost of the national debt is set to become the government's largest single expense within the next few years, crowding out spending on other priorities and leaving policymakers with increasingly difficult choices.
