The U.S. Treasury’s interest payments on debt reached $882 billion in the fiscal year ending in September 2024, the highest since the 1990s. This is more than even defense spending, representing 3.06% of GDP, the highest ratio since 1996.
The increase is due to historically high budget deficits, rising spending on Social Security and Medicare, COVID-19 related expenditures, and the impact of the 2017 tax cuts. Additionally, inflation-driven interest rate hikes have contributed to the higher costs, which are crowding out private investment and adding to the overall debt load.
The Fed’s move to lower rates offers some relief, but interest costs remain a burden that will, over the long term, continue to pressure the federal budget. The high interest payments and growing debt levels are adding volatility and uncertainty to the markets, as investors demand higher compensation for holding U.S. Treasuries.
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