1% Higher Interest Rates Add $3.5 Trillion in Debt

Interest costs will exceed $1 trillion this year and have nearly tripled from $345 billion in Fiscal Year (FY) 2020. By FY 2036, the Congressional Budget Office (CBO) projects that interest payments will be double what they are today and surpass $2.1 trillion. We estimate that using CBO’s interactive tool on economic conditions, an alternative scenario in which yields on Treasury securities rise above baseline projections could result in interest payments being trillions higher over the next decade.

For example, if interest rates were to be 1.0 percentage point above projections – bringing the 10-year Treasury note from an average 4.3% over the decade to 5.3% – it would add an additional $3.5 trillion to the debt above projections. By 2036, interest costs would total $2.7 trillion – nearly 6% of Gross Domestic Product (GDP). Debt held by the public would rise close to 128% of GDP, compared to 120% under current law projections.

If all interest rates were to rise 0.1 percentage points above projections, as they have already been trending in 2026, deficits would increase by $387 billion and interest costs would total $2.2 trillion by 2036.

Interest payments on the debt are already at a record 3.2% of GDP and will be one of the largest contributors to spending growth over the next decade. High interest rates can be both a cause and consequence of high debt. And we have previously experienced volatile interest rates in response to the growing uncertainty around our debt burden. Rising interest payments crowd out spending in other parts of the budget and could ultimately lead to a debt spiral or fiscal crisis. The best way for policymakers to control rising interest costs is to bring down deficits.