The US federal budget deficit reached $1.97 trillion for the first 11 months of the fiscal year, a figure approaching historical highs, and is projected to hit approximately $2.1 trillion for the full fiscal year 2026, which is $200 billion worse than earlier projections. This significant deficit is pushing the nation's debt burden to unprecedented levels, with gross federal debt having crossed $40 trillion in August 2026.
A major contributor to this financial strain is the escalating cost of servicing the national debt. Gross interest on the federal debt is expected to reach about $1.4 trillion in fiscal year 2026. Interest payments have surged, totaling over $1 trillion annually and now account for roughly 15% of all federal spending. This means approximately 19% of federal tax revenue is consumed by debt servicing, surpassing military spending since 2024 and Medicare this year.
The National Seniors Policy Center (NSPC) warns of an "exponential growth phase" in federal debt servicing costs, highlighting that the "interest-to-borrowing ratio" has risen significantly to approximately 67 cents in September 2026, up from 40 cents in 2023. The NSPC suggests that crossing the 70-cent threshold indicates a spiral where new borrowing primarily funds prior debt. The situation is exacerbated by recent interest rate hikes, including the Federal Reserve's quarter-point increase to a target range of 3.75% to 4% on September 16, 2026. This has led to the 10-year Treasury yield exceeding 5% and the 30-year yield reaching a 24-year high of 5.35%.
Analysts like Carsten Roemheld from Fidelity International and Kim Crawford from JPMorgan Asset Management emphasize the bond market's demand for discipline in spending, which they note is currently lacking. Treasury Secretary Scott Bessent's efforts to lower yields through increased bond buybacks, tripling operations to $6 billion in September 2026, have been ineffective, with yields continuing to rise. Experts warn that if interest rates remain just one percentage point above Congressional Budget Office (CBO) projections, an additional $3.5 trillion could be added to the national debt, with annual interest costs potentially reaching $2.7 trillion by 2036.
