If you thought last year’s national debt numbers were chilling, you haven’t seen anything yet.
In the second week of August, the CBO released its Monthly Budget Review giving year-to-date totals, calculated through July, for federal FY 2026, ending September 30.
For the first 10 months of fiscal 2026, Washington’s carrying costs grew an astounding 14%, from $846 to $963 billion versus the same period in FY 2025, far and away the biggest jump of any expense line item. By contrast, Social Security rose 5%, and Medicare and Medicaid 8% each. In just 12 months, interest zoomed from equaling 64.9% of Social Security outlays to 70.1%. A year ago, the category had barely edged past Medicare to become the 2nd largest budget cost after Social Security.
The huge increase in interest expense has two sources. The first is the explosion in the federal debt. Since the start of 2026 through August 22, that burden swelled another 7.3% to $40 trillion. Since the start of 2019, the federal debt has swelled by nearly 50%. And the indebtedness trajectory is steepening: In the past three weeks, the number’s accelerated at incredible 1% rate, or an annualized trajectory approaching 15%.
Second, interest rates have famously spiked big time in the past year. Around 50% of debt held by the public is parked in Treasury Notes of 2 to 10 year maturities. Since July of last year, the yield on the two year has advanced from 3.94% to today’s 4.18%, or 6%, while the 10-year’s waxed faster, from 4.37% to 4.69%, for a 7.3% rise. And deficits keep rising, the Treasury will need to issue more and more debt to fund operations.
The towering menace to the U.S. economy: Both factors are getting worse in a hurry. Through July, the budget deficit mushroomed by 10% to $1.8 trillion, and is on autopilot to keep ramping at an ever-rising cadence. As for rates, a major but little mentioned motive for Secretary of the Treasury Scott Bessent’s plan, unveiled on August 19, for the Treasury to buy huge amounts of 10-year Treasuries is an effort to throttle the runaway interest on the federal debt. He’ll offset the purchases by selling newly-issued, shorter-term bonds at lower rates. In theory, shifting to a younger greener mix should somewhat lower the average yields paid on our borrowings.
The Bessent strategy is a stop-gap measure only. It won’t curb a fundamental force behind those higher rates, the federal government’s gigantic borrowing that’s only going to grow. The Bessent announcement made a big splash, and spread relief on Wall Street. The interest explosion got pretty much ignored. But it’s the one force Bessent may hobble a bit, but can’t come close to slaying.
