How have interest payments on the federal debt changed since 2017 and what drives those changes?
Executive summary
Interest payments on the federal debt have climbed sharply since 2017 — moving from historically modest levels to roughly $881 billion in 2024, with projections putting annual payments at or above $1 trillion by 2026 and rising thereafter [1] [2] [3]. That rise is driven primarily by two observable forces: a much larger stock of federal debt accumulated since the 2008 financial crisis and especially during the pandemic, and materially higher market interest rates as the Federal Reserve tightened policy beginning in 2022 — with refinancing dynamics amplifying the impact [4] [5] [6].
1. A steep run-up in dollars and in share of the economy
Measured in dollars and as a share of GDP, net interest costs have surged: interest outlays reached roughly $881 billion in 2024 and are projected to top $1 trillion in 2026, with the Congressional Budget Office and nonpartisan trackers warning interest will be the fastest‑growing budget category over the next decade and could reach 3.2 percent of GDP in 2026 — a post‑war high — before rising further in later years [1] [3] [7].
2. Two basic arithmetic drivers: more debt and higher rates
The amount the government pays in interest is the product of the outstanding debt and the interest investors demand; both legs have moved against the Treasury since 2017. Debt outstanding expanded substantially after large pandemic-era deficits and continued deficits thereafter, while market interest rates rose as the Fed tightened to fight inflation in 2022–2023, raising yields on new and refinanced Treasuries [4] [5] [6].
3. Refinancing timing and the short maturity structure magnify year‑to‑year swings
Because a large share of outstanding debt matured or was refinanced during 2022–2024, much of it rolled over at higher rates; analysts estimate that each percentage point rise in rates on the refinanced stock added tens of billions to annual interest payments, which explains sharp year‑to‑year jumps rather than a slow, smooth increase [5].
4. Projections matter — and they rest on uncertain assumptions
Official forecasts (CBO and Treasury trackers) show interest costs ballooning over the coming decade — for example, the CBO baseline projects net interest payments totaling $13.8 trillion over the next decade and climbing from roughly $1.0 trillion in 2026 to $1.8 trillion by 2035 — but those projections assume current laws and macro assumptions that could change if growth, inflation, fiscal policy, or Fed actions diverge [3] [7].
5. Fiscal and policy consequences, and competing narratives
Rising interest costs are already crowding the budget: interest has become one of the largest federal outlays and is projected to grow faster than other major categories, pressuring discretionary programs and complicating entitlement financing [3] [8]. Different actors frame the problem to suit agendas: fiscal hawks emphasize structural deficits and entitlement reform [8], rating agencies highlight credit risks and elevated financing needs [9], while some commentators stress that the U.S. retains unique financing flexibility (issuing its own currency) and that rate declines would materially ease near‑term pressures [2] [5].
6. Paths forward and key uncertainties
The trajectory of interest payments depends on three levers: future deficits (which change the stock of debt), the path of interest rates (shaped by inflation and Fed policy), and how much of the existing debt is rolled over at prevailing rates; a quicker return to lower interest rates or sustained fiscal consolidation would slow the growth of interest costs, whereas sustained deficits plus higher-for-longer rates would exacerbate them [5] [7] [3]. Importantly, official projections are not destiny — they are conditional scenarios that vary with policy and macro outcomes [10].