Interest costs in the USA reached a record level

US government debt interest payments reached a record high, exceeding $1 trillion in fiscal year 2026. The increase in interest expenses causes a larger share of federal revenues to be allocated to debt service, while also raising concerns about the country's resilience to economic shocks.

According to US Treasury Department data, net interest expenses increased to $1.05 trillion in the 12-month period ending in September. Thus, the interest bill of 970 billion dollars in the 2025 fiscal year increased by more than 8 percent.

Research organization Peter G. Peterson Foundation expects the ratio of interest expenses to gross domestic product (GDP) to reach 3.2 percent. If this happens, the rate will surpass the previous record set in 1991. GDP data for the last quarter is expected to be announced in late October.

Debt stock and interest rates increase costs

There are two main factors behind the rise in interest expenses: growing debt stock and higher interest rates. A key debt indicator has surpassed $32 trillion, an increase of nearly $10 trillion from just five years ago.

The average interest rate the U.S. government pays on market-traded Treasury bonds is also on the rise. The rate reached 3.52 percent as of the end of September, and was at 1.47 percent five years ago.

Moreover, the interest rates encountered in new borrowings are even higher. The current benchmark yield in Bloomberg's index of US Treasury bonds is around 5 percent. This indicates that the rise in borrowing costs may increase the pressure on the budget in the coming period.

Economists do not expect a crisis yet

Rising interest rates have led US Treasury Secretary Scott Bessent to take extraordinary steps to keep borrowing costs under control. However, economists are of the opinion that current conditions do not yet indicate a debt crisis.

The fact that the demand for treasury bonds remains strong and high borrowing costs have not yet disrupted the credit flow shows that there is no significant problem in the US economy's access to financing at this stage.

Louise Sheiner, senior fellow at the Brookings Institution and former Federal Reserve economist, sees the current situation as an erosion of the country's fiscal capacity over time rather than a sudden crisis.

Sheiner stated that it is unclear at what point lenders will start to avoid lending to the USA, and warns that such a development could cause the Treasury to lose its ability to obtain financing from the markets and lead to a serious financial crisis.