US debt interest hits $1.05 trillion, a record 3.2% of GDP

At Southern Methodist University, Treasury Secretary Scott Bessent said 3% economic growth could put the federal debt on a sustainable path. “With 3% growth, we grow our way out of this,” he said.

Treasury Department budget data point to the scale of the test. Net interest payments on federal debt rose 8% to $1.05 trillion in fiscal 2026, equivalent to approximately $2.9 billion per day.

The federal deficit widened to $1.99 trillion in fiscal 2026, 12% worse than the $1.78 trillion deficit in fiscal 2025. Revenue rose 3% to $5.4 trillion, while total federal spending increased 6% to $7.4 trillion.

Interest costs grew faster than spending, revenue and GDP. They accounted for 3.2% of GDP, passing the previous record set in 1991.

Interest payments now rank third among federal spending categories, behind Social Security and Medicare and ahead of defence and Medicaid. Gross US debt stands at $40 trillion, while publicly held debt is at 100% of GDP.

The cost of servicing that debt reflects both higher rates and the need to refinance. Gross interest costs totalled $1.36 trillion in fiscal 2026, at an average interest rate of 3.53%, more than double the rate in 2021.

The 10-year Treasury yield has risen above 5%, exceeding the Congressional Budget Office forecast of 4.1% for this year and 4.2% for 2027.

Approximately one-third of publicly held debt, more than $10 trillion, is due to mature within the next 12 months. It will have to be rolled over at higher market rates.

The Congressional Budget Office projected in February that annual debt interest expenses would reach $2.1 trillion by 2036. The Committee for a Responsible Federal Budget said that, if yields remain approximately 1 percentage point above CBO estimates, interest costs would rise to $2.8 trillion, or 5.9% of GDP, by the end of the decade.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, described the risk as a cycle in which rising borrowing costs make the debt harder to manage. “Higher interest begets more debt, and greater debt begets higher rates and higher interest. Eventually, the whole thing could come crashing down,” she said.

The immediate question is whether economic growth can keep pace with interest costs as the government refinances maturing debt. Fiscal 2026 showed the opposite direction: the interest bill rose faster than the government’s revenue, its overall spending and the economy.