US government debt interest payments exceeded $1 trillion in October, a Bloomberg analysis revealed. This staggering cost of debt has doubled in the past 19 months amidst ballooning federal deficits.
According to data analyzed by Bloomberg Intelligence, the estimated annualized interest payments on the US government debt pile had surpassed $1 trillion by the end of October. This figure was calculated using US Treasury data, which discloses monthly outstanding debt balances and the average interest costs. The current annualized cost of debt has doubled over the past 19 months and equates to 15.9% of the entire federal budget for fiscal year 2022.
Analysts at Bloomberg Intelligence noted that this high proportion of interest payments as a share of federal spending has historical precedent, with the portion before 2000 being over 14% in most years. They also warned that the challenge for the government lies in tempering mandatory spending and trying to reduce the need to issue more debt, as interest payments continue to climb despite forecasted lower Treasury yields.
This acceleration in federal debt-service costs is a reflection of the rapid expansion in federal deficits. Notably, the federal government closed out its 2023 fiscal year in September having spent $659 billion on interest payments, a significant increase from $476 billion in fiscal 2022 and $352 billion in fiscal 2021.
The Federal Reserve’s aggressive rate-hiking campaign has contributed to driving up borrowing costs across the economy, including for the US government. The higher borrowing costs mean that the government now pays more interest on its debt.
Furthermore, rising US debt interest payments create a negative feedback loop, as higher yields on Treasurys to attract new borrowers exacerbate already-high borrowing costs for the government, which now has a total debt exceeding $33 trillion.
As such, Treasurys have suffered a historic collapse in recent years, in part due to growing concerns over the mounting US debt, which prompted a “bond vigilante” comeback. Market experts have expressed fears that if the US debt is not brought under control over the coming decades, a default of some form may be unavoidable, as forecasted by a Penn Wharton Budget Model.
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