OPINION:
Every day, the federal government spends nearly $3 billion on interest on its debt. That’s almost $120 million per hour — and it only covers the cost of past borrowing.
When the Federal Reserve held interest rates steady on Oct. 28, many in Washington and across the country were hoping for a cut, but the Federal Open Market Committee kept its target range for the federal funds rate at 3.75% to 4.00%.
The Fed’s decision increases borrowing costs for families and businesses, weighing on everything from mortgages to business investment. There’s also an uncomfortable consequence for Washington: It makes financing an already enormous federal debt even more expensive.
People were interested in these podcasts
The U.S. national debt now exceeds $40 trillion, roughly 126% of GDP, and continues to climb. The last time the federal government recorded a budget surplus was in 2001 when the debt was only $5 trillion. America’s national debt has skyrocketed eightfold in a quarter century, with no signs of slowing down.
As the size of the debt grows, the cost of carrying it also increases. But that’s not an argument for easier monetary policy. It’s an argument for responsible fiscal policy.
Last year, the U.S. collected $5.5 trillion in revenues and spent $7.5 trillion in outlays, running a $2 trillion deficit. Interest on the $40 trillion debt accounted for nearly $1.3 trillion of that spending. To finance deficits, the government borrows by issuing securities, primarily Treasury bills, notes, and bonds.
When investors expect persistently higher inflation, they demand higher yields to compensate for the expected erosion of purchasing power. That pushes Treasury yields higher, making new federal borrowing more expensive.
With Washington already carrying $40 trillion in debt and persistently running large deficits, higher borrowing costs increase the government’s interest burden.
The result is a doom loop cycle: substantial debt leads to higher interest costs, wider deficits, more borrowing, and still more debt.
This is why the Federal Reserve acts, and not in the way Washington may prefer.
The Fed doesn’t exist to keep the government’s borrowing costs low. Its “dual mandate” is to maximize total employment and maintain price stability. The Bureau of Economic Analysis estimated August 2026 inflation at 3.4%, still above the 2% stated target. This supports the Fed’s continued focus on curbing inflation and, more importantly, inflationary expectations.
Demanding the Fed suppress interest rates to make borrowing cheaper merely attacks the symptom, not the disease. Though lower rates can address affordability concerns and ease pressure on federal deficits, restoring price stability will require higher interest rates for potentially longer periods once households and investors expect higher inflation.
For long-term price stability, it was crucial that the Fed send the signal that it remains committed to protecting the purchasing power of the dollar, even when doing so comes at a short-term cost—namely interest payments.
Interest on the national debt is expected to reach $2.1 trillion by fiscal 2036, making it the third-largest single-line item on the budget and nearly 20% of federal spending. The Congressional Budget Office projects annual federal deficits will rise from $1.9 trillion to $3.1 trillion in the next decade, partially driven by rising interest costs. The CBO also estimates that if interest rates were 1.5% above expectations, cumulative deficits would increase by $6.0 trillion, even if Congress doesn’t enact additional spending.
Left unchecked, rising rates and debt-service costs create an increasingly vicious fiscal cycle: more revenue goes toward servicing yesterday’s borrowing, leaving less room for today’s priorities and forcing Washington to borrow more. Eventually, policymakers face increasingly painful choices over taxes, spending, and entitlement reform.
The Federal Reserve didn’t create Washington’s $40 trillion debt. Congress and leaders of both parties did. The Fed shouldn’t feel pressured to erase the consequences of decades of deficit spending by keeping interest rates artificially low. That responsibility falls on Congress.
Lawmakers must put the federal budget on a sustainable long-term path toward balance. Ensuring generated revenues cover all non-interest spending, known as a “primary balance,” can be achieved by voting in representatives who support fiscal responsibility.
Waste and fraud should be rooted out wherever they exist, but those savings cannot substitute for confronting the structural drivers of federal spending. The CBO projects that government spending on Social Security and Medicare, along with interest payments, will grow faster than the economy over the coming decade. Any serious fiscal plan must acknowledge that.
For decades, Democrats and Republicans seemingly agreed with unlimited spending and only disagreed over what it should be spent on. The Federal Reserve is not responsible for today’s fiscal problem or the solution. The Fed’s job is to protect the value of the dollar, not the value of Washington’s borrowing habit.
The Fed got it right. Now Washington needs to do the same.
_____
Nicole Huyer is a senior research associate in The Heritage Foundation’s Roe Institute for Economic Policy Studies. Alex Keckler, a member of Heritage’s Young Leaders Program, also contributed to this column.
Please read our comment policy before commenting.