Washington’s interest expense on the $40 trillion national debt surged 14% in the first 10 months of fiscal 2026, reaching $963 billion compared to $846 billion in the same period last year, according to the Congressional Budget Office’s Monthly Budget Review released in August. This marks the largest increase among federal expense categories and highlights the growing cost of servicing the national debt.
The sharp rise in interest costs stems from two main factors: the expansion of the federal debt and rising interest rates. Since the start of 2026 through August 22, the federal debt increased by 7.3%, reaching $40 trillion. Over the past seven years, since 2019, the debt has grown nearly 50%. Additionally, interest rates on Treasury Notes, which make up about half of the publicly held debt, have climbed significantly. For example, the yield on the two-year Treasury note rose from 3.94% last July to 4.18% currently, contributing to higher carrying costs.
This increase in interest expense has pushed it from just over Medicare’s outlays to become the second-largest federal budget cost after Social Security. Interest payments now equal 70.1% of Social Security outlays, up from 64.9% a year ago. The rapid growth in debt and rising interest rates combine to steepen the trajectory of federal borrowing costs, posing challenges for fiscal policy and budget planning.
The national debt’s growth rate has accelerated recently, with a 1% increase in just three weeks, implying an annualized growth rate approaching 15%. The fiscal year 2026 ends on September 30, by which time the full impact of these rising costs will be clearer, as detailed in the CBO’s ongoing budget monitoring.