U.S. Debt Interest Payments Hit $3 Billion Daily, Surpassing Defense Spending in Fiscal 2026

Net interest payments on the U.S. national debt reached $1.05 trillion in fiscal 2026, climbing 8% from the prior year and translating to roughly $2.9 billion per day, according to Treasury Department data released October 17. Interest costs now rank third among federal spending categories, surpassing both defense and Medicaid, while the average interest rate on outstanding debt stood at 3.53% — more than double the rate recorded in 2021 before the Federal Reserve's aggressive tightening cycle.

The fiscal 2026 budget deficit widened to $1.99 trillion, up from $1.78 trillion in fiscal 2025, as federal spending grew 6% to $7.4 trillion while revenue increased only 3% to $5.4 trillion. The Peter G. Peterson Foundation estimated net interest at 3.2% of GDP, breaking the previous postwar record set in 1991. With gross U.S. debt at $40 trillion and publicly held debt equal to 100% of GDP, interest payments are projected to be the fastest-growing segment of the federal budget in the coming years.

Treasury Secretary Scott Bessent has shifted the debt profile toward short-term instruments, retiring long-term obligations so that more than $10 trillion — roughly one-third of publicly held debt — matures within the next 12 months, forcing the government to roll it over at today's higher rates. The 10-year Treasury yield has climbed above 5%, far exceeding the Congressional Budget Office's earlier forecast of 4.1% for this year. The Committee for a Responsible Federal Budget warned that if bond yields remain about one percentage point above CBO projections, annual interest costs could surge to $2.8 trillion, or 5.9% of GDP, by the end of the decade.

Bessent has argued that sustaining 3% economic growth will help the country grow out of the debt burden, a position CBO Director Phillip Swagel cautioned is more complicated. Swagel noted that stronger growth lifts wages and increases outlays on programs like Social Security, and tends to push interest rates higher as well. The CBO's own February baseline projected annual debt interest expenses would reach $2.1 trillion by 2036 under its original assumptions.