The U.S. Congressional Budget Office (CBO) projects that federal net interest spending will reach $1 trillion in fiscal year 2026, accounting for 3.3% of GDP, surpassing the historical peak of 3.2% in 1991.

Net interest spending will increase by $69 billion from 2025, a rise of about 7%; it previously grew by 34% and 10% in the two preceding years. The rising interest costs stem from the expansion of the federal debt stock and the refinancing of maturing bonds in a higher interest rate environment.

According to CBO's baseline forecast, cumulative U.S. net interest spending from 2026 to 2036 will total $16.2 trillion, with annual amounts rising from $1 trillion to $2.1 trillion. During this period, net interest as a percentage of GDP will increase from 3.3% to 4.6%, accounting for nearly one-fifth of total federal spending.

Interest spending has now surpassed defense spending. In fiscal year 2025, U.S. net interest spending will exceed $1 trillion for the first time, making up about 14% of total federal spending, approximately $150 billion more than federal defense spending; this indicates that the debt stock itself has become a larger expenditure item in the U.S. budget than most individual programs.

The structure of the deficit has also changed: the total federal deficit for 2026 is expected to be 5.8% of GDP, with a primary deficit of 2.6% of GDP and net interest at 3.3%. Even excluding interest, the budget remains unbalanced; new debt continues to accumulate, further expanding future interest bills.

Market Mechanism: The U.S. Treasury is the supplier of national debt, while domestic banks, money market funds, pension funds, insurance companies, overseas official institutions, and private investors are the buyers; high deficits and refinancing needs drive continuous bond issuance, with the market absorbing supply through yield and term premiums. Rising interest costs will squeeze discretionary fiscal spending and increase investors' return requirements for long-term bonds; short-term bonds, money market funds, and the treasury brokerage settlement system benefit, while long-duration bonds, growth assets reliant on low-interest financing, and fiscally sensitive sectors face pressure.

Source: Public Information