“Interest on Treasury Debt Securities (gross)” has exploded in the past half-decade, climbing from $523 billion in FY 2020 to $1.133 trillion in FY 2024—a 117 % jump. Through the first nine months of FY 2025, interest payments already stand at $921 billion; if the recent monthly run-rate continues, the full-year bill will land near $1.23 trillion.
What of it? Positive for the banks, disaster for public, negative for the market…
For now, the stock market has no alternatives.
– Fear of rising interest rates – no one buys for fear of seeing the purchase price drop.
– Fear of dollar devaluation – no one buys bonds in this situation.
Only the stock market remains operational – recovering what has been left behind.
Is MAGA actually on-track?
Tariffs do not address the central issue of interest rates. All the media attention is focused on the tariff agreements, and no one is writing about the real problem—deficit reduction. Tax cuts further exacerbate the problem, and don’t forget the Fed is stuck on high rates, no choice but to help fund the bond auction appetite, to keep the system on tracks.
How fast are costs growing?
| Fiscal Year | Interest Paid ($ millions) | Y/Y % change |
|---|---|---|
| 2019-20 | 522,651 | — |
| 2020-21 | 562,389 | +7.6 % |
| 2021-22 | 717,612 | +27.6 % |
| 2022-23 | 879,305 | +22.5 % |
| 2023-24 | 1,133,035 | +28.9 % |
| 2024-25 (YTD Jun) | 920,965 | +6.1 % vs. same period FY 24 |
Over five fiscal years the compound annual growth rate of interest expense is 18.6 %. In comparison, marketable debt outstanding rose from roughly $16.3 trillion (June 2019) to $28.7 trillion (June 2025), a compound pace of about 11.8 %. Put differently, servicing costs have grown roughly 1½ × as fast as the debt itself.
Why the sudden surge?
- Higher coupons. Roughly one-quarter of the public debt matures each year. As sub-2 % notes issued during the 2010-2021 period roll off, they are being replaced with paper yielding 4–5 %. The weighted-average interest rate on marketable debt has doubled in three years.
- More T-Bills in the mix. Treasury has leaned on short-maturity bills to meet heavy financing needs. Bills re-price every few months, so the effect of Fed hikes shows up almost immediately in outlays.
- Large primary deficits. New borrowing adds at today’s higher yields, compounding the effect of rollover.
Tariffs Are Not the Answer
Key takeaway: No tariff plan—whether a 10 % border tax or the 15 % all-imports tariff currently championed by former President Trump—can offset the ballooning cost of interest. Even if every dollar of tariff revenue flowed to the Treasury, it would not recoup the $94 billion year-over-year jump in interest outlays, let alone the projected trillion-plus bill now baked in each year.
Cutting interest expense requires lower rates or smaller deficits, not new levies that risk slowing growth and stoking inflation—developments that would raise bond yields and therefore interest costs.
Budgetary implications
Interest is now the second-largest federal outlay category after Social Security and is on track to consume about 15 % of all FY 2025 spending. Every percentage-point rise in the average funding cost adds roughly $370 billion in annual interest payments on the current debt stock—capital that could otherwise fund infrastructure, R&D, or tax relief.
Who benefits—and who doesn’t?
- Banks & money-market funds (positive). Rising coupons boost net-interest income and provide abundant, risk-free collateral—windfall gains for the financial sector.
- Financial markets (negative). Higher servicing costs and tariff uncertainty weigh on risk appetite, tighten financial conditions, and pressure valuations.
- The public (DISASTER). Households face higher borrowing costs, slower job creation, and the double-hit of tariff-driven price increases—without any relief to the federal interest tab.
Policy choices ahead
If rates remain near current levels, interest outlays will breach $1.5 trillion by FY 2027. Policymakers can:
- Lengthen duration to lock in today’s rates, accepting higher near-term costs for slower growth in future outlays.
- Broaden the tax base (e.g., limit loopholes, rethink expiring TCJA provisions) rather than rely on headline rate hikes or blunt tariffs that risk growth.
- Re-prioritize spending toward high-multiplier investments that raise long-run GDP—and thus the denominator of the debt-to-GDP ratio.
- Coordinate prudently with monetary policy; history warns against using the Fed balance-sheet to cap yields absent a credible fiscal anchor.
The trend is unmistakable: absent slower inflation, lower real rates, or tighter primary deficits, interest costs will keep outpacing economic growth—and the federal budget will continue to tilt toward compulsory finance rather than discretionary policy. This reality must be confronted head-on—no tariff plan can paper over the math.